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we have a family run business for the last 15 years and with our parents now at an age of retirement we would like to find someone to buy them out. how could we find someone and how would we go about it. thank you.

3 Answers

R, your situation is very common for family businesses where inter-generational succession planning is the exit strategy being adopted. The first question to consider is whether the exit of your parents is for financial reasons or a desire to change the management to a new team. In most cases, if it is the latter, you must have a well defined set of job descriptions so siblings all know who is responsible for what as your parents won’t be there to act as the “boss” forever. Engaging with an external advisor / mentor to mediate is well advised.

Although there are investors that may consider your investment proposal you are likely to find most investor are expecting their new money to remain in the business to enable growth, not used to payout an exiting party that may also hold significant experience in running the business.

To get the right exit plan for your parents, and the rest of the family, you may want to engage a financial planner to understand what your parent financial needs are into retirement (if you haven’t already do so) and use this as a base to have the business pay them down.

Also consider talking to a tax expert as there are various tax benefits if they have owned the business for greater than 15 years and now retiring. This could be a significant saving depending on the size of the business and very costly if you get it wrong.

Hopefully my advice is of benefit for the family. From experience I know this will be a huge family event and I strongly suggest that all family members’ needs are considered throughout the process not just the financial support of your parent for emotional reasons.

R, your situation is very common for family businesses where inter-generational succession planning is the exit strategy being adopted. The first question to consider is whether the exit of your parents is for financial reasons or a desire to change the management to a new team. In most cases, if it is the latter, you must have a well defined set of job descriptions so siblings all know who is responsible for what as your parents won’t be there to act as the “boss” forever. Engaging with an external advisor / mentor to mediate is well advised.

Although there are investors that may consider your investment proposal you are likely to find most investor are expecting their new money to remain in the business to enable growth, not used to payout an exiting party that may also hold significant experience in running the business.

To get the right exit plan for your parents, and the rest of the family, you may want to engage a financial planner to understand what your parent financial needs are into retirement (if you haven’t already do so) and use this as a base to have the business pay them down.

Also consider talking to a tax expert as there are various tax benefits if they have owned the business for greater than 15 years and now retiring. This could be a significant saving depending on the size of the business and very costly if you get it wrong.

Hopefully my advice is of benefit for the family. From experience I know this will be a huge family event and I strongly suggest that all family members’ needs are considered throughout the process not just the financial support of your parent for emotional reasons.

Hi R, This is a very common scenario - and a scary one for many families in business! That doesn't mean it should be avoided or pout in the too hard basket - Business Succession and Exit planning is vital for any business.

Steven Covey’s habit number two is Begin with the End in Mind. Covey says, ‘If you want to have a successful enterprise, you clearly define what you’re trying to accomplish. The extent to which you begin with the end in mind often determines whether or not you are able to create a successful enterprise.’ So,

What is Succession Planning?

Succession planning covers all aspects of the business, but importantly focuses all attention on the end outcome – What are we actually trying to build within our business? Is it something to fund our retirement? To list on a stock market? To raise further capital and grow? To pass on the members of the family?

Strategic succession planning means we have a detailed and documented plan covering every aspect of our business that continually moves us closer to our ultimate exit outcome. Most business owners are so caught up in running the business on a day to day level they do not have time, effort and attention focused on the end outcome.

Why succession planning?

In Australia, more than 50% of business exits are currently a failure i.e. bankruptcy, liquidation, death or serious illness, divorce or simply walking away and closing the doors. This is largely because no succession planning has been undertaken by the business owner.

When is succession planning needed?

In my view, strategic planning is all about time. The simplest analogy is to ask whether you would consider approaching a real estate today with a view to selling your property this Saturday. Most real estate agents could actually achieve this, though, without any time to market, prepare the property and review their buyers' database, the price they achieve will not be the real value of the property. Most of the businesses I work with require a minimum of five years to maximise the value and prepare themselves to extract that value successfully.

How to implement succession planning successfully?

Our unique 21-step process is a holistic process of preparing your business for succession. It begins with simply reviewing your position today. By undertaking due diligence, benchmarking, structural review and valuation, we can determine what exists in the business today and where there are opportunities and challenges which may affect the ultimate exit strategy. On most occasions, business owners do not have an exit strategy and are not aware of all the options, and so our strategic planning process identifies which option/s is most suitable and what we need to do to maximise the opportunity.

In many cases, there are several areas within the business, both financial and non-financial, that need to be addressed prior to any exit plan being implemented. We have had considerable success with implementing a Management Buy-in (MBI) where key people within the business are retained and incentivised with a vehicle in place (Peak Performance Trust) to purchase shares based on a profit share arrangement, with those funds being reinvested into the equity of the business rather than taken at as cash payment. This plan operates over an extended period and has the added benefit of attracting, retaining and motivating key staff within the business who now have a vested financial interest in maximising the value, as does the owner. This may not be suitable for all business owners but has had considerable success with some of our clients.

In all cases, business owners must be prepared to make every decision considering whether it brings them closer to or further away from their ultimate exit strategy

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