Search

Early exit strategies crucial to realise business investment

The last thing any business owner wants to hear after investing years of hard work in their business is that it is not marketable and they will not be able to recover their assets. Yet for many businesses that fail to plan for the day they want to pack up shop, this may well be the case and could be avoided. Australia has an ageing population, which is also reflected in the ownership of small businesses. In 2001, 30 per cent of small business owners were 50 years or over. This figure had increased by 10 per cent per annum since 1999. Planning for succession or exit becomes critical for owners over 50 as many rely on the sale of their business to fund their retirement. Despite the majority of small businesses being family businesses, it is less common today for children to automatically take over the family business. Starting or owning a small business is not as high a priority for younger people in Australia as it is in many other countries with a stronger entrepreneurial culture. Changes in health, personal or family circumstances can also bring forward the need to sell a business. Some business owners want to realise their capital to invest in another proposition, or start another business, while others may be driven out by external factors such as the termination of a lease or increasing competition. Sometimes, when an owner hasn?t considered exit strategies, he or she may find they have to stay longer than they hoped as they try to find a buyer or get the business into shape so they can attract interest in it. This can be painful when the owner has already realised they want to go. How do you plan for exit? The most common strategies include: ? selling the business as a going concern; ? passing the business to a family member either outright or over a number of years; ? selling to a member of staff, which can also be negotiated over a period of time; or ? liquidating the assets and closing the business. Most business owners will need some help to maximise the value of their business and identify the best option for their circumstances. Reasonably sized businesses and those with saleable assets, a niche market position, and/or good performance, are often easier to market. Many of these businesses are consumed by another business looking to increase market share, gain critical mass or move into new markets, rather than sold to new entrepreneurs. Trade and occupation based micro and small businesses that have an established customer or asset base can also be easier to sell as it is possible to identify potential buyers within a trade or profession. Likewise with businesses that are protected in some way by competition rules, such as newsagents, pharmacies and in some states, liquor outlets. However, business owners in this group should be aware that at some stage in the future the regulatory regime may change and impact on the value of their business. On the flip side, businesses with lifestyle and personal goals are likely to be more difficult to sell than those with strategic and growth objectives, as the existing owner?s goals may be difficult to match with a new owner?s. Poor performing businesses are also less attractive unless they are supported by realisable assets. Businesses with no competitive advantage or unique proposition in a market with low entry requirements are also hard to place as there is little incentive for prospective buyers to pay for goodwill when they can open up in competition or wait until the original business closes and take over its customers. In many of these cases, business owners should try to think about their business as an income stream, rather than an asset, to avoid unachievable expectations when selling their business. Inflated expectations can delay or damage an owner?s chances of leaving the business with the best possible deal, so it is important to have an open attitude and not be too emotionally involved in the business. Another difficult group of businesses to sell are those where the business is dependent on the owner. It is difficult for the business to be valuable to someone else if it is completely dependent on the current owner and cannot function without them. Part of an exit strategy for a business is to become ?fit for exit?, which may include restructuring, the owner becoming more strategic and ensuring the business is independent of the owner. There are several implications for government policy associated with business exits. While most government agencies provide programs to support start-ups and business growth, strategies for later business lifecycle are less common. The changing environment and ageing population will lead to increased numbers of businesses for sale in the future and possibly a decline in the number of businesses in some sectors. Exit programs could be included in an armoury of support programs, particularly in regional areas and areas with low employment where the closure of a business could significantly impact on the local economy. ? Judy Hartcher, Business Policy Adviser for CPA Australia

Add your comment

BNIQ sponsored byECU School of Business and Law

Students

6th-Australian Institute of Management WA20,000
7th-Murdoch University16,584
8th-South Regional TAFE10,549
9th-Central Regional TAFE10,000
10th-The University of Notre Dame Australia6,708
47 tertiary education & training providers ranked by total number of students in WA

Number of Employees

BNiQ Disclaimer