Recent surveys by a number of the Big Four banks and numerous accounting firms identify succession planning as the number one issue among business owners approaching retirement. Like so many ‘buzz words’ coined to capture complex trends, succession planning fails to address so many of the problems that small business owners grapple with.
For example, manufacturers find themselves looking for a viable exit from their businesses at a time when markets for their products and services are disappearing offshore. Unable to find buyers prepared to pay a fair price for the value they have created, or family members willing to take the reins, sadly more and more face the terrible alternative of simply turning out the lights and walking away.Engineering plant C-Mac, based at Girraween in western Sydney, NSW, has bucked the growing national SME trend to wind up on owner retirement with the introduction of an employee-owned share plan (ESOP) offered to all its employees.
It’s an employee engagement strategy that has already seen an 18 per cent hike in productivity at the plant as well as help the owners plan for retirement and contrasts with research showing 38 per cent of businesses aren’t aware of ESOPs as a succession plan option while a further 44 per cent consider employee buyouts as unlikely or very unlikely.
At C-Mac Industries, the Employee Share Plan was very well received by the employees with all but two employees now participating in the company and earning equity and involvement in the business as well as an income.“This plan is a great example of the combination of enthusiastic employees … and owners who can see the benefits of increased participation and who are prepared to create a win-win environment for all stakeholders,” said Craig West, CEO of Succession Plus and designer of the C-MAC ESOP.
"People are now saying ‘us’ instead of ‘me’ and asking, ‘what do you want us to do?’" explains Steve Grlyak, C-MAC’s manufacturing manager.“Job security is a key motivator and we do not want to lose employees with skills. There are now charts in the lunch room so everyone can see how the business is doing. The change has been unbelievable. As a manager with job security and a share in the business it’s a great pleasure to manage a team who want you to lead with ideas.”
The company’s founding family members are the principal shareholders but see the benefits of a gradual sale of shares to employees based on profit share as well as the increased involvement of key staff within the management team.
Succession Planning is actually about putting in place a strategic business plan for your business which allows you outline your business and personal goals and relates directly to your ability as a business owner to extract the maximum amount of value from your business when you exit, to provide for your retirement planning needs.
55 % of business exits in Australia are failures of some sort – bankruptcy, liquidation, divorce, death, receivership – a strategic business succession plan should ensure your business does not fall into this category. Many businesses find they need to grow, employ more people or raise capital as an initial step towards an exit or transition towards retirement. Many people underestimate the time involved in implementing a strategic plan for their business and therefore do not maximise the value of the business – If you do not have a strategic approach to business succession planning – any value you have been able to build into your business may well retire when you do!
It is clear that a vast number of business owners are not prepared for their succession and will end up making decisions at the last minute, with the likely outcome to be a poor result not only for the business owner, but the clients, suppliers and staff also. Most business owners go into business not only to earn an income, but also (and perhaps more importantly) to build the value of the business and to sell at a profit after a thorough business valuation. Our partners are experts in the accounting and tax, financial planning, legal and organisational management fields and combined can work strategically with your business over a period of time to ensure it delivers your retirement goals.
In fact, more than half of all small business owners in Australia plan to use their business as the primary source of funding for their retirement. The average age of family business owners in NSW today is 56 years – so for many, retirement is not too far off. For many owners, the value locked-up within their business is their second largest asset behind the family home, and in some cases it is even more valuable than the family home. Our process determines your business valuation and provides mentoring and advice to ensure that valuation matches your financial needs as a business owner.
Yet while most people will happily invest time, effort and money planning for the sale of their home, they don’t do the same with their business. Choosing to invest the time and effort to develop a strategic business succession plan based on professional business advice ensures that you realise the maximum value from your business when you retire may be one of the most important financial decisions you ever make.
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