As you’ve learned in our earlier articles there is much to consider when it comes to business succession planning.
While selling your business may be a cornerstone of succession, achieving it involves completing a multilayered process that rests on an abundance of decisions. These directly relate to how and when capital can be extracted from your business so that it delivers the most effective financial and tax outcomes for you. In this article we focus on the personal financial planning matters that need to be considered and resolved to enable a successful business sale and seamless succession.
Personal benefits of succession planning
The benefits of succession planning include capital extraction from the business to appropriate structures with tax minimisation strategies considered. The timing of the sale transaction to suit all parties and reducing risks by working with the purchaser to facilitate sale completion are also important considerations.
Business owners who have a clear understanding of their personal financial circumstances, their options and the opportunities and benefits associated with each type of sale transaction method, can place themselves in a strong negotiating position. This position of strength can result in a higher sale price with better sale conditions and improved personal wealth outcomes.
They’re also more likely to avoid the all too common issues of paying more tax than necessary or leaving themselves exposed to risks. A properly considered succession can also reduce the risk of the sale stalling, falling though or having to deal with other unexpected issues which can impact on achieving financial and career goals or delay retirement.
The importance of a proper structure for personal financial planning
While having the proper structure in place to receive capital from a full or partial sale is essential, consideration of the exiting business owners’ personal financial affairs is vital to determine what the most appropriate structure will be.
The structure will be influenced by the business owners’ personal financial position, their time line for exiting the business along with the type of sale transaction to be used.
Knowing your financial position aids negotiations
Understanding what a business owner needs from the transaction is important for articulating the profile of potential purchasers who may include buyers known to the owner such as a business partner, employee, competitor or another complimentary business owner. This will allow the business to be prepared in a manner that will appeal to those most likely to buy it.
Further, by understanding their own financial position, a business owner may be better placed to assist potential purchasers to buy the business from them.
For example, exiting business owners may be in a financial position to offer options that may include a partial release of capital from the business with the remainder taken over time. This can enable the buyer to better organise their finances. Alternatively, the exiting business owner may be able to provide vendor finance that will directly facilitate the sale transaction.
Similarly, the exiting business owner’s future aspirations can also influence the sale approach and outcome.
While some business owner’s motivation may be to retire from work completely, for others it may represent stepping back from full time business responsibilities, passing it on to next generation family members or key employees or perhaps transitioning to something else entirely.
Business owners who remain involved can continue their professional life, earn income as a salaried employee and contribute to the ongoing success of the business which can result in a premium sale price at completion of the sale transaction.
As these matters are considered and resolved, appropriate structures for receiving and distributing capital can be decided in alignment with the personal financial affairs of the exiting business owners. These will commonly address matters of asset protection, tax efficiencies, investment and superannuation strategies, retirement and estate planning requirements.
Collaboration is key to success
Succession planning is complex and requires a range of professional insights. In our experience, success occurs when the business owner is surrounded by a collaborating advice team including an accountant and tax specialist, lawyer and financial planner who provide seamless attention to important interconnected matters that make it happen.
Following are the key questions you’ll need to consider in context of your personal and financial goals and aspirations for getting exit-ready:
From a personal financial perspective, what do you want to achieve from selling your business?
When do you, or at what stage of your business, do you wish to sell?
What are your future work/life aspirations?
Who do you think is the most likely buyer for your business?
What do you think is an approximate sale price and will your financial planning needs been satisfied by this?
Which method of sale transaction will best suit your circumstances? (refer to Craig Hong’s article)
Further, take a moment to download and read our strategy paper: Business Sold. Value Extracted. Future Assured. which outlines the steps we, along with our collaborating professional partners, implemented to execute a successful business sale and succession.
To find out more about business succession planning or to arrange a discussion about the succession process that includes tax and accounting, legal and personal financial planning considerations pre and post-sale, please contact Brett Cribb, Financial Adviser on +61 (0) 7 3007 2000 or email firstname.lastname@example.org.
Getting Exit-Ready takes three to five years
by Craig Barry, Accountant & Tax Specialist
Balancing Risk to Maximise Sale Return
by Craig Hong, Lawyer
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306. This is general advice only and does not take into account your objectives, financial situation or needs, so you should consider whether the advice is relevant to your personal circumstances. You should also read the relevant Product Disclosure Statements (PDS) before making any financial decision.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting & business advisory services for executives, professionals and business owners in the mining and resources sectors.