Succession planning critical as baby boomers reach retirement age

With the first of the baby boomers reaching retirement, predictions of SMEs hitting the market at depressing sales prices mean owners should now be fine-tuning their succession plans.

HLB Mann Judd Sydney Partner Simon James believes owners who plan ahead can still achieve an attractive price even in a “buyer’s market.”

“Some commentators have suggested that, as many baby boomer business owners retire, there will be fewer people around wanting to buy businesses, but I don’t believe this is true.”

“In my experience, many SMEs are sold to larger businesses such as consolidators or international companies wanting to expand in Australia, and a number of SMEs are sold to family members,” he added.

According to James those who haven’t started their succession planning process should be prepared to stay in the business for another two to five years, and it’s critical all baby boomer owners are “investor ready” and ready to seek advice.

Some additional issues business owners should consider include:

Family Sale

Family sales still require careful planning, as factors including how the sale is going to be financed may affect the owner’s retirement plan.

Additionally James suggests “holding discussions with family members and lenders; ensuring the business runs independently of the owner; and giving the family the opportunity to show lenders, employees and clients they can run it successfully, will require planning.”

Flexibility

If an owner is committed to retiring in a particular year, then the price can be affected, particularly for a trade sale.

“Waiting for the best market conditions can make a significant difference if the market is in the doldrums,” James said.

Succession Plans

According to James, “some long term strategies are essential to get maximum value from the sale- of particular importance if it is to fund the owner’s retirement.”

Furthermore, he believes a business with strong management independent from the owner, a good profit record, audited accounts over several years, a good financial record and sound marketing plans for the next several years are all considerations that make a business attractive to a buyer.

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