Every business owner needs an exit strategy so that when they are ready to hand over the reins there is enough support to keep the company operating effectively.
While this is an important consideration, a recent study from the accounting firm RSM Bird Cameron has found that many SMEs don't have an effective plan in place to handle this process.
Among the companies surveyed as part of the study, the most common exit strategies involved handing the business on to family members or selling to an outside investor. These two options accounted for over half of those surveyed, with 30 per cent and 28 per cent respectively.
While passing on to family members was a popular option, many firms are unsure how to undertake this process. In fact, almost two-thirds (65 per cent) reported that they did not currently have a succession plan. Only 25 per cent of small businesses already have a family member within the company who will take over the business as part of their succession plan.
Many business owners have not taken into account the various aspects of their business either when it comes to setting up a succession plan. For example, only a third (35 per cent) have had their business valuated in order to understand its worth – a key consideration when it comes to tax and other aspects of an exit strategy.
These findings point to a real gap in the preparations that Australian small businesses are making around company succession. RSM Bird Cameron advises that companies should begin the process of building an exit strategy two to three years in advance in order to have all the pieces ready in advance.
Another advantage of having such a strategy in place is that, should the succession plan fail to come to fruition due to a change in circumstances, the adoption of the strategy will result in the business being "sale ready", enabling the business to be marketed to third parties in the most cost-effective way possible and thereby maximising the returns from such a sale.
For business owners that want to get their commercial agreements and succession planning in place ahead of time, make sure to speak to a commercial lawyer. They will be able to advise on the best strategies so that your hard work is not undone by a missing exit strategy.