MYOB New Zealand sales manager Scott Gardiner says there are a number of things that one should consider when retirement is on the cards. Mr Gardiner says it’s often useful to think of it as an exit plan.
It all starts with a plan and regardless of the type of business you’re in you should have a plan.
- What am I looking to achieve?
- Over what time period?
- What is the structure of my business? Is it just me or is it a partnership? Or family member?
- If I stopped working, how much money would I need to keep myself and or my family at the level we are accustomed to?
How much is my business worth?
If you are looking or thinking about selling your business, whether it be to a partner, third party or even a family member, it’s a good exercise to determine what it is worth. Often business owners have a view of what their business is worth but that might not be the case in reality. It can be a sobering realisation. So things worth thinking about include:
- If I sold my business today, what would I get for it? And with those proceeds what could I do? Would it be enough to live on or invest to live on?
- If I am not thinking about selling for a while, what are some things I could do to build an increased value of my business?
- Will I look to sell to a family member and if so will that dictate the upfront proceeds I might yield versus selling to an external party.
Is it all about me?
One of the biggest issues facing many small businesses is that so much of the business’s success is tied up in them as the business owner. Consider for a moment that you didn’t go into work for a day, or a week. How would the workplace go? Would they carry on as normal? It is important that you build into your businesses systems and processes, as well as encouraging other staff and senior managers to be key client contacts. Because if the business is too much about you, it will be very hard to sell.
- You have built up the client base.
- You know all the systems and processes.
- You maintain all the external relationship with key stakeholders.
What else should I think about?
A few other things to consider:
- If you are working in partnership with partners, do all your values, aims and plans for the business align? If not, succession discussions can be tricky.
- How much of your businesses is documented? Processes, business plans, key stakeholders, agreements (this should be a no brainer for legal folks). It is surprising how many “informal” agreements are tested in the future only to discover they were heard differently by both parties.
- Having great financial systems. A business that is intending to sell is no different from any other business in that you have to know how you are doing in a financial sense. However more importantly, with a business that is setting up for sale, it is vital that someone can review the financial health of the business. In fact, many valuations of businesses are done as a multiple of earning displayed in financial systems. And to a future purchaser, nothing shows better how well a business has been managed than a nice tidy set of accounts and financial statements.
- Having a great adviser. An accountant is truly valuable in any process involving succession planning. They can help with business plans, business valuations, process improvements, tax planning and business structures.
- Insurance and asset protection. It’s crucial for the success and succession of any business that key assets are well protected. In professional services these are often people. Ensure key staff are protected as well as any key assets a firm possesses. These could be fixed assets, but equally it could be intellectual property that has been built up over the years.