According to PwC modelling, this period of transition will present a “once in a lifetime” opportunity for retiring business owners to capitalise on their years of work.
However, PwC private clients leader Sanjiv Jeraj explained, “When it comes to transition, not all owners have the same goals. While some prefer an outright sale, others want to maximise their company’s growth potential before they exit or hand over the reins.
“‘Going for growth’ can help increase the value in your business and ensure you – and your family – reap the benefits.”
With this in mind, PwC provided 10 tips for business-owners on the brink of retirement:
1. Take your time
Speaking generally, PwC said business owners achieve better results if they allow six to 12 months to ensure the transition has been properly planned.
2. Think about your family
It’s important to consider family objectives prior to the transition process, PwC said, explaining that small differences can become magnified as the point of transition approaches.
The magnified differences can potentially put the process at risk, or trigger family conflict.
3. Who’s your buyer
“The natural buyers of your business will typically pay the highest price,” PwC said, telling pre-retirees to find their “natural buyers” and find out how they assess value so the business can be best prepared to maximise valuation and competitive tension.
4. Step back
Hire a solid CEO or general manager and support team and step back for a year, PwC said. This way the team can prove themselves for a year before transitioning, and give future buyers the comfort that the business’ success doesn’t hinge on you.
5. Tidy up!
“One of the biggest problems is a lack of investment in professionalising the business,” the consulting firm said.
“Sort out financial reporting and accounting, separate the owner’s affairs from the business and tidy up legal and operational risks.”
6. What’s your EBIT?
An EBIT is your earnings before interest and taxes. Business owners entering retirement should understand that every sustainable dollar the EBIT figure gathers prior to the transition is worth ‘x’ times EBIT when selling time arrives.
“Ideally, give yourself two years to realise profit improvement initiatives and demonstrate their sustainability to buyers,” PwC said.
7. Leave something behind
Naturally, opportunities for future growth mean buyers will pay more, PwC said. These opportunities can include new products, channels or geographic expansion.
With this in mind, PwC said business owners should plan for these opportunities and partially implement them. This way, buyers will believe in the opportunities and be more willing to pay for them.
8. Protect your proceeds
What does your tax structure look like? It’s important that business owners build a wealth strategy to protect their post-sale proceeds in order to meet retirement objectives.
9. Be prepared
“The mergers and acquisitions market in any given industry can grow hot and cold very quickly, and have a large bearing on valuation; get your business in a sale-ready condition as early as possible so you can respond quickly to changes in the market,” PwC said.
10. Do your homework
Business owners don’t get a second chance at transitioning their business, PwC reminded, calling on pre-retirees to ask for professional help when required and keep in mind that selling a business is very different to running one.