How to prepare to sell your nest egg

By Scott Edden - December 13, 2018

Small to medium enterprises (SMEs) play a key role in keeping the nation’s economic wheels turning and employ millions of Australians – but many of those business owners leave themselves open to disappointment when the time comes to sell up and move on.

Pitchers Partners Dealmakers: Mid-Market M&A in Australia 2018 report highlights a serious situation, finding that most SME owners are ill-equipped to achieve an optimal sales outcome for their business. In fact, despite the overwhelming majority relying on selling their business to fund retirement (67%), fewer than one in six (16%) have built a succession plan to help ensure a smooth sale.

Today, there are fewer younger people looking to run their own business and more older people looking to sell up. Our population is ageing, with more Australians exiting the workforce than entering it. The Department of Treasury's InterGenerational Report found that in 2015, there were 4.5 workers for every retiree. By 2054, this is expected to fall to 2.7 workers per retiree.

According to a 2016 report by the Association of Superannuation Funds of Australia, almost 67% of self-employed Australians have less than $40,000 in super – making it highly likely that the majority are planning on relying on the sale of a business to fund their retirement. So how will these SMEs optimise the sale of their nest egg if they haven’t put enough effort into making it saleable?

Planning ahead for how and when to hand over the reins should be a priority for business owners as soon as they set up their business. A solid succession plan represents a keen eye on the future, a deep understanding of their industry, where they are heading and their position within it.

Businesses should recognise their unique selling proposition. They should undertake a SWOT analysis and calculate growth projections on a regular basis, reassessing the strength of their offering. It is important to set up the best possible systems, processes, management strategies, financing structures and IT supports. Just as importantly, they must ensure they properly maintain financial and staffing records and always adhere to government requirements, regulations and standards.

As with any area of our economy, the number and value of SME transactions is determined by supply and demand. Succession planning is increasingly important, as selling competition rises and buyer interest falls. If you plan for a sale right from the outset, you build a business that lives up to its sale potential.

Five key steps in succession planning

If you are thinking about succession planning, the first step is a conversation with your accountant and/or business advisor. They will assist with building or finetuning a sound succession plan, help put your documentary evidence in order and have business connections who might be interested in the sale.

If you are looking to sell your business, here are five key steps to give yourself the best chance of success:

  1. Speak to your accountant/business advisor about your plans
  2. Ensure your succession plan is up to scratch, ready for actioning, and you have in hand a wide range of accurate business information
  3. Get your business valued and its saleability assessed
  4. Use a range of business sale promotion avenues and engage your potential buyers
  5. Negotiate the sale and its contract with a solicitor, informing your business advisor/accountant so they can assist with tax and other financial implications

Pitcher Partners is experienced in advising SMEs, and can provide guidance and support for owners considering a sale of their business. For more information, get in touch with your Pitcher Partners contact.

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