Following the ABN’s month of powerful stories and insights from inspiring Australian businesswomen who started their own business, there is no better time to put pen to paper and consider planning an efficacious, profitable and personally satisfying exit from your Small to Medium sized Enterprise (SME). Every business has three main phrases: start-up, operation and exit. For SME owners, exiting the business can mean selling, passing it down to family members or preparing for internal succession. What many of them fail to do is plan this exit strategy from the moment they enter the business, and then manage it adequately. It would be true to say that most small business owners have at least considered their exit, but only 15 per cent manage it adequately. Deciding the future of your business beyond your involvement can be a difficult proposition to face, but it is crucial if you wish to come out financially strong and leave a healthy legacy behind. Planning well in advance will also help to maximise the value of your business and allow time for a smooth transition and unforeseen contingencies. Succession should be managed five years before the planned exit, following these five steps:
- Identify potential buyers — Be clear on your ideal buying proposition and do your market research to identify potential buyers.
- Get your financials in order — To maximise your financial return on exit, it’s important to ensure all the business financials are in order and you are generating a profit. Also, consult an external expert or advisor to identify the best strategies such as staged payments and super contributions to minimise tax on the proceeds.
- Get your processes in order — The first step here is to identify any problems. Once they are fixed, focus your attention on developing or enhancing processes that will generate systematic driving of profit and business sustainability.
- Be ready for the opportunity — The right opportunity may knock at your door when you least expect it. If you’ve done the first three steps and are mentally prepared to move on, you will be able to take full advantage of any unexpected offers that come your way.
- Spend money on the exit process — To ensure you maximise your return, consider seeking the professional services of a business broker or external advisor. The investment will be worth it.
The key to successful succession for SMEs is to plan early and manage adequately. A well-coordinated exit process will benefit not only the current owner, but also the employees, customers and new owner.