Objectives: Evaluate your situation Explore Succession and Exit Planning options Learn about the benefits of planning Find out how to develop an effective plan Gain an understanding of the basic steps in

preparing a business for sale or transfer Understand the importance of having good

advisers

Your Business

30% of business owners are aged 50+

CPA Small Business Succession and Exits Survey April 2004,RSM Bird Cameron (2006), Swaab (March 2006)

45%+ have no business or succession plans

50% would fund their retirement from the business sale proceeds

40% want to retire within five years

Did You Know?

Succession Planning is a process by which successors are identified and development activities planned

Types of successors

Ingredients of good succession planning

Process starts with evaluating your position

What Is Succession Planning?

Page 3

Why did you go into business and what did you hope to achieve?

Have you achieved it?

Is there anything that you would like to achieve before exiting the business?

What is your preferred exit option and do you have an ideal buyer/successor?

Initial Questions & Self Assessment Checklist

Page 3

Systematic approach for someone to transition away from a business:

do on own terms, not dictated by othersmaximise after tax dollars

Should be staged

Exit strategies should be included in your business plan

Encompasses management succession, ownership transition planning and estate planning

Exit Planning

Page 6

Difficulty delegating

Fear of change and identity

Difficulty accepting that anyone has the skills or capability to succeed them

Concerns about ability to maintain lifestyle

Fear of conflict over choice of successor

Concerns about treating children fairly

Fear of life after work

Poorly advised

Common Reasons for Not Planning

Page 7

Reporting

Information systems

High accumulated asset value

Tidy business

Key employees ageing

Awareness about planning

Factors that Influence Exit Opportunities

Page 9

Ensure economic independence

Provide short- and long-term success of business

Maintain family harmony

Minimise taxes

Gives control of the process and peace of mind

More profit and higher efficiency

Mitigates disruption to business if crisis occurs ie. owner becomes incapacitated or dies

Exiting – Why Plan?

Page 10

Exit planning is a process not an event

Begin planning from the start of your business

Otherwise prepare or revise when:

you retireyou restructure the businessdeath (of spouse, beneficiary, key employee)marriage or divorce (of a child or shareholder)sale of businessmajor change in circumstances

When to Start Planning?

Page 11

Family

Employees

Reviewing talent bench:

assess key positions

identify and assess key talent

generate employee development plans

monitor and review development

consider contracting an HR specialist

Exit and Transition Options

Page 12

Non family

Partnership

Merge/consolidation

More Exit and Transition Options

Page 18

Condition of plant, fittings, office machinery

Customer files

Accounting systems

Policies and procedures

Complaint handling

Financial accounts and financial health

Taxation returns

Litigation

Staffing

Inventory

Common areas to check:

What Shape is the Business in?

Page 19

1. Set exit objectives

2. Determine the current value

3. Make the business more valuable

4. Sell or transfer

5. Have a contingency plan

6. Preserve legacy of owner’s estate

Six Exit Planning Steps

Page 21

Three approaches:

Income

Asset

Market

Three key componentsto setting prices:

Plant

Stock

Goodwill

Sales statistics and industry rules of thumb

Common Valuation Methods

Page 24

Return on investment

Earnings based method

Cash flow method

Realisation of assets

Common valuation drivers

How to increase business value

Valuation cont.

Page 26

Doing it alone:

information stagenegotiationAgreementhazards of handling sale on own

Using a professional adviser or broker

Adviser roles and duties

Options for Selling

Page 32

Situation 1 – Family Business – manufacturer of specialty technical products(page 34 of workbook)

What are the options for the parents to exit?

Situation 2 – Small Service Business(page 35 of workbook)

Is there any problem with this approach?

Discussion of approaches and ideas

Case Studies

Complete Personal

Action Plan(page 37)

Personal Action Plan

Business mentors help you to identify a clear direction for you and your business.Business mentors can also advise you on how to:

conduct market researchprice and/or cost your products or servicesdevelop an effective marketing strategyuse other business management tools

Using your FREE SBMS voucher

To arrange a session with a business mentor go to:

www.sbms.org.au/OurPrograms/SpecialistVouchers.aspx

and type in WASD as your code

Questions?

Thank you for attending

Check outbusiness.vic.gov.au/workshops

for more workshop information