Your future - in whose hands?Enterprise - September 2010 |
There is no denying that we New Zealanders are an enterprising and entrepreneurial bunch. The fact that “number 8 wire” is enshrined in our national folklore is a testament to that, as is the large number of SMEs operating in New Zealand. This is all well and good, until it comes time for the owners of these businesses to retire.
It is estimated that the ownership of more than 100,000 kiwi businesses will change hands in the next five years. In addition, 70% of business owners are counting on the sale of their business to fund their retirement.
These statistics raise two interesting and potentially scary questions:
- will there be buyers for all these businesses?
- will people be able to afford (and be willing to pay) the prices needed to fund the current owner’s retirement?
Despite an outright sale being the most popular form of succession considered by respondents to a recent ANZ privately-owned business survey , the reality is that in order to extract the greatest value for your business, you may need to consider alternative methods which generally take longer to complete.
The good news is that there are a variety of sales options which, when selected appropriately, can increase:
- your likelihood of finding a buyer
- the value ultimately realised
- the ability for you as the current owner to remain involved in the business, if desired
The following table outlines a few of the more common options. It is by no means an exhaustive list and often a combination of options can be used.
It is important to note that the appropriate sale option will depend on the likely buyer. If a trade or industry buyer (for example a competitor or a key customer) is involved then an outright sale is more likely.
If a current employee or family member is the logical buyer then one of the more progressive exit strategies, such as vendor financing, is likely to be appropriate. Current employees or family members often do not have the ability to raise sufficient funding to provide you with an immediate exit.
Regardless of how you go about it, exiting your business and getting your capital out takes time. Planning is critical and will help you focus on what needs to be done and help you determine the best time to sell.
Successful succession planning also focuses on steps you can take to improve the value of your business and get it ready for sale in the years before you go to market. These improvements usually take time to implement so the sooner you start the better prepared you will be.
Many of our clients have told us of the time, dedication and passion it took to build their business. These kiwi businesses are our legacy and, like the founders, we would like to see this legacy preserved. As a result, regardless of the business and the option that you feel will be most appropriate for you to implement, we stress that it is never too early to start planning your exit strategy.
Scott is a Manager in our Corporate Finance team and Tim is an Associate Director in our Accounting and Advisory team. Contact Scott or Tim.
