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Succession and Exit Planning: Work to Live rather than Living to Work

by Jon Broadley – Business Advisory Service Manager

How does one address the sensitive subject of life after business?  If you believe the old adage from Benjamin Franklin that 'the only two things that are certain in life are death and taxes', and that avoiding both is somewhat difficult, then we should plan for them.  Tax planning is something you need to do regularly with your Accountant to ensure your changing personal and business circumstances are being taken into account and this is generally done well because there is legislation requiring us to pay our way!          

The other certainty in life, death, is less prescribed as it is a little uncertain as to when it is going to happen for each of us.  What we do know is that as a business population some 62% (almost two thirds) of business owners are over 50 years of age and that 23% (almost one quarter) are over 60 years of age.  45% of business owners aspire to retire in the next 5 years but only 11% have a formal succession plan in place (ANZ Privately-Owned Business Barometer Survey).           
Given that there are less numbers of Generation X, Y and now Z in comparison with us baby boomers, greater financial demands and with less equity/capital available to them, who is going to takeover these businesses? How are you going to fund your retirement if you cannot find a buyer for your business?  These are questions that each of us need to address with some urgency particularly if you are in the 45% who are looking to offload your businesses in the next five years.  If you are in the remaining 55%, then thinking about it would be prudent, because you may need to help the next generation to be financially independent earlier and assist them into the business.  Yes we are living longer but that also means our nest egg has to be larger to ensure that we can enjoy the fruits of our labour.              

Preparing your business for sale or transfer takes time.  How are you going to address the problem can be illustrated by learning about the Bathtub test:

During a visit to the secure psychiatric unit, a noted aging businessman, who was looking to bequeath some of his money to this facility asked the Director how he determined whether or not a patient should be institutionalized. "Well," said the Director, "we fill up a bathtub, then we offer a teaspoon, a teacup and a bucket to the patient and ask him or her to empty the bathtub." "Oh, I understand," the businessman said "A normal person would use the bucket because it's bigger than the spoon or the teacup."  "No." said the Director, "A normal person would pull the plug.  Do you want a bed near the window?"          

The moral of this story:  Sometime the answer to the problem is simpler than you think.  By giving yourself time to examine all the options it gives you more choices and ensures you arrive at a better outcome.  Please think about your future in this way.          

We can help with your Succession Plan.  Come along to the Chamber SA5 on 22 October 2014 to learn more or contact any of the Team here at accounted4 if you wish to discuss your future – it’s worth it. All the best in your Business,