Choose the best succession plan for your business

Planning and preparation are key to a successful sale or transition of ownership that gains maximum value for the owner. It can't be done in a matter of months and developing a succession plan needs to be started years before retirement as it will take time to put in place.

The main options for business owners looking to sell their business are:

Family takeover

If children or other family members want to work in the business then the succession part of the planning is half way there. However it can be hard to step aside and let children take over, and at the same time put a satisfactory financial approach in place for the owner to take out capital from the business.

There may also be some well-founded concerns about whether the children are really ready to run, or indeed be capable of running, the business.

Planning ahead will enable business owners to put into place ways of overcoming issues that may turn into problems. This could include training programs to help equip the next generation to better run the business, or recruiting someone with complementary talents.

On the other hand, owners shouldn't assume their offspring will want to take over the business one day – they may have no desire to do so.

Passing on the business to the next generation is a dream for many business owners that oftern turns into a nightmare. Business decisions become clouded by emotive issues and the focus of a business decision may be shifted from what is best for the business to what is best for individual family members.

Selling to employees

Owners rarely consider selling to employees but it can be a very satisfying option for those who have developed good working relationship over the years.

There are several ways it can be financed, through venture capital (another alternative in its own right) or buy-out arrangement where the owner is paid out of future profits of the business.

In these circumstances the business owner should look at some security over future payments, such as holding a mortgage over the business.

Owners should also consider employee share plans. They are not just the domain of publicly listed companies, although franchisors do need to be careful and watch the capital gains tax considerations.

Selling to another business

Another third party approach could be selling to another business. This usually means a competitor, even though an owner may be instinctively against this approach. It could also mean a business wanting to expand into your industry, or individuals wanting to take over an existing, profitable enterprise.

Often a competitor is likely to make the best offer as they know the industry and good planning can help make the business more attractive as a trade sale. Another business is also likely to make the best financial arrangements for the purchase, helping the owner set up their retirement.

Venture capitalist

Depending on the size of the business, owners could find it an attractive option for a venture capitalist. This can give an immediate return on their investment in the business, and also help fund planned growth of the business.

If set up a few years before retirement, the use of venture capital will also instil discipline into the management of the business and give access to expert and experienced external advice.

Going public

Obtaining a public listing on the Australian Stock Exchange is another way for business owners to capitalise on their investment in the business. There are a number of examples of successful family businesses that are listed on the ASX where the family still has some control over the running of the business.

However, seeking a public listing is not a short-term project and there ar cnsiderable costs involved. A long-term view must be taken by the franchisor involving advisors and ensuring the business is set up for a successful listing at a good price.

Also franchisors must be prepared for greater public scrutiny of their business finances than they were used to.