• Planning for retirement and succession

It can take a lifetime to build a successful business.

But many business owners literally throw away their life’s achievement by failing to adequately plan for succession and retirement.

Under-prepared owners who plan to finance their retirement via the sale of their business often get a rude shock. There is a far smaller, much tougher and considerably more discerning group of potential buyers awaiting them than they have imagined. And where a buyer can be found, only the best-prepared businesses will be able to realise an acceptable sale value.

There are many different factors at play that can lead to an owner’s reluctance to properly consider succession. Many owners see themselves as entrepreneurs and suffer from a bias against planning. They are adept at running the business and coming up with the ideas that have made their business successful, but often they need outside help to think more long-term. There is also a natural reluctance for a business founder to let go of control of their creation. This can be because they have so closely identified their sense of self-worth to the business that they fear for their future without it. They may also fear retirement itself, particularly if they have no meaningful post-retirement plans.

When succession planning does occur, there are two deficiencies that commonly arise:


1. Planning doesn’t start soon enough. Usually, a five-year timeframe would be regarded as the minimum to employ a succession plan properly. This allows for sufficient time for remedial action to be taken to correct deficiencies in the business which can impact on the value ultimately achieved in a sale.

2. Planning is not structured or formally documented. A properly structured process should include a business valuation and an assessment of the owner’s financial position to understand:

  • whether the likely proceeds from a sale are sufficient to sustain the owner in retirement,
  • the succession options (for example, trade sale, MBO, IPO or generational family transfer)
  • the steps to be taken to enhance the business value prior to the succession event
  • how to effectively manage the succession transaction, including short-listing of offers and due diligence; and
  • wealth management/estate planning which should also include advice on taxation implications from an appropriately qualified expert

Business succession can be particularly challenging for family businesses, where there can often be disagreement among family members regarding succession options. There can be a strong desire for long-established family businesses to keep control within the family. Many such families regard themselves as custodians of the business for future generations. However, there may not be ready-made successors within the family, or those who are willing to take over may not be qualified, and those who are qualified may prefer to do something else with their lives. Management of family succession carries many inherent pitfalls and can greatly benefit from the assistance of experienced independent advisers.