Selling Your Business To Family Members

There are many options when selling a business. One option is to sell the business to family.

Family succession

Business owners who have invested a lot of time and money in growing a business may have a strong desire to keep that business in the family when they leave. If you plan to transfer your business to a family member – either as a gift or through sale – you need to consider how this will affect both the business and your family.

Choosing a family successor

When choosing a successor from your family, it’s wise to take time to think about what's best for the long term future of the business. While you may want to set up your children financially by giving them the business, this could cause problems in the long run if they don't actually want to take it over. You need to make sure your successor has both the necessary skills and commitment to take the business forward. Avoid making a decision based on emotion. For this reason it can often be a good idea to establish a board of non-family members to get an objective opinion. Be aware of potential problems when choosing a family successor. Choosing just one successor may cause conflict if others are equally interested in taking over. Or, if you appoint more than one successor, this may lead to arguments as there is no clear leader. If the successor(s) don't agree on how the business should be run, this can cause significant problems. You can be sure that people will not agree on everything, and because family members will not be able to agree on everything consideration needs to be given to haw that can be dealt with – before a disagreement arises. … this is all about prevention. Ideally, your successor should have to 'earn' their role, not just be given it because they are family – this can upset other employees who are qualified to take over. To get some idea of a potential successor's suitability and interest, you could organise a “trial period” during which they work in different parts of the business. If you have more than one successor, it might be a good idea to delegate areas of responsibility based on each person's particular skills and goals.

Ownership and management

An important consideration in family succession planning is how you will transfer both ownership and management. Ask yourself the following questions:

• Will you transfer both ownership and management to family members?
• Will ownership be equal among family members?
• Will the management team include non-family members?
• Do you need to change the business's goals and long-term objectives?
• How do you measure the success or performance of the succession?
• Which family members will be actively involved in the business? What are their roles and responsibilities?
• Will any family members have non-active ownership?
• Does your successor need training or mentoring to overcome any lack of skills?
• Do you want to act as an adviser once you have transferred ownership?
• How long will the transition take?

Financial and legal issues

You will need to think about the legal and financial implications of family succession and include these in your succession plan:

• Are you gifting or selling the business to your family?
• Do you need to set up a trust as part of the succession? Forming a family trust to own and operate the business on behalf of your children will have tax implications.
• If you are selling your business to a family member, will you get its market value? Getting a professional valuation will ensure you are rewarded fairly for all the work you have invested and will help avoid financial disputes.
• Would you prefer to receive a regular dividend from the business rather than a lump sum?

Be sure to get professional legal and financial advice before selling part or all of your business.

Communication and dispute resolution

Open communication is a key part of family succession planning. You need to include both family and key staff in any decision-making related to future management and ownership. Their feedback is vital. Regularly review your plans with family to make sure they are aware of, and happy, with progress. You also need to make sure you have a process for resolving disputes. Family businesses can be emotional environments. A trusted outsider such as a lawyer, accountant, or family business adviser, can help provide an objective opinion.

Planning

The old adage is true. You know the one… “Failing to Plan is Planning to Fail”, and the act of planning for family succession is key to achieving a successful outcome.   What sort of things should be included in plans?

• Setting a timeline
• Having the business valued
• Determining the final outcome
• Planning the steps towards ownership transition

Why an Exit Strategy is so Important

  What if you don’t? Pressure Panic Orderly realisation When a business fails to plan an exit strategy, it places the business owner at increased risk in a number of ways. In recent times it has become more common for financiers to look for (and expect) an exit strategy in a business plan, because there is growing awareness of the importance of contingency planning. Contingency planning is an important part of the exit strategy, because things don’t always go the way they are expected to. Some of the less attractive scenarios that may be in effect when a business reaches its exit point include:

• Voluntary liquidation
• Involuntary liquidation
• Forced closure
• Hostile takeover
• Dissolution of partnership
• Discontinuation for health reasons
• Loss of irreplaceable personnel
• Force Majeure events

Voluntary liquidation would be the most desirable of these scenarios, where the business and its assets are sold or otherwise transferred. Normally this provides wealth to allow retirement income or for investment in a new business opportunity. Involuntary liquidation, on the other hand, is undesirable. This is where a business has no choice but to liquidate its assets in order to pay debts, usually leaving the owner with very little and sometimes nothing. Forced closure is when the government directs a business to cease operations for reasons of health, safety, morality, or violations of law. This is almost as bad as involuntary liquidation, except that funds from liquidated assets go to you instead of to your creditors. Hostile takeovers rarely affect small businesses, but dissolutions are very common. These are situations where partners or shareholders in a business have a disagreement that can’t be reconciled. Health problems are always a risk too, and can force you to have to sell the business or just close it down. If you haven’t prepared an corporate exit strategy, this will hurt a lot more. Some businesses are highly dependent on specific personnel to sustain their operations. If for any reason those individuals are no longer available to the business, it may be forced to close, and even sale of the business may not be possible. Force Majeure covers all the most extreme events such as war, terrorism, and natural disasters. These are things you can’t do anything about but which will have a major negative impact on the business. Even worse, these are things that normally can’t be insured against. As you can see, there are many different possible scenarios a business could face at the end of your connection with it, and a well-defined business exit strategy should take into account all of the possible scenarios that fit the nature of the business.   Help with exit strategy planning Developing your exit strategy is not a task you have to tackle alone. You can get help from an exit strategy advisor. Contact a Benchmark Advisor to assist you with your exit strategy today.  

WHAT IS AN EXIT STRATEGY?

An exit plan is simply a plan for EASING OLD OWNERSHIP OUT, AND EASING NEW OWNERSHIP IN. Simple. It is a plan where you can “Exit on your own terms”… not because you have to, but because you want to. This is a plan to get what you want and to know how to get it. An Exit Strategy is not just about selling the business. There are options which don’t involve a conventional sale. Some other options include:

• Management Buy Out
• Family Succession Planning
• Earn-out or partnership buyout
• Sale of some shares in Company
• Sell to competitor or supplier
• Part sale

  A Simple and Necessary Exit Strategy Plan An exit strategy is not necessarily complicated. At its heart, the exit strategy is merely a plan for exiting the business gracefully. Of course it should also allow you to exit to your own best advantage, which is why it is best to plan the exit strategy well in advance. An exit strategy may involve:

• Planning for your financial well-being after exiting
• Preserving your stake in the business (if desired)
• Planning for succession
• Loyalty to existing employees

Planning ahead is the key to a good business exit strategy. If you had to leave your business tomorrow, could you do it? Those who have done a good job of planning will be able to answer that question confidently and affirmatively.

FACT: You will not own your business forever.

If you don’t sell your business you will either: -         Die as the owner, and leave the business to others -         Close down Either way, you will eventually inevitably be out of your business. So, all business owners really must look at planning for an eventual exit from the business if they want to “cash in” and enjoy the ultimate benefit of business ownership.

MORE FACTS ·      Most business owners wait too long to sell… when the mojo has left them ·      You will get more for your business if you sell “at the top” ·      In 2011, the median age of Australian business owners was 47, with 22 % over 65 years. Therefore, in 2019 the median age of business owners will be 55. ·      About 80% of Australian business owners plan to retire in the next 10 years ·      53% of business owners in Australia have no exit strategy in place ·      22% of businesses will close down So… even though the majority of small business owners expect to exit their business within 10 years, most of them don't have an exit plan.   WHY BOTHER? Every business owner should have an exit strategy. Interestingly, very few people start to think about developing a business exit strategy until they are ready to retire, or they become seriously ill, or they suddenly find the business in some kind of trouble. It’s quite simple….. You have two choices. 1.   Do Something 2.   Do Nothing   If You Do Something. We have found that business owners who plan their exit will sell for between 50% to 100% more than those business owners who fail to plan. No matter what exit strategy you choose – you can guarantee the optimum outcome by simply PLANNING AHEAD. Exit strategies are something every investor looks for… The questions are the same – no matter what the size of the business. How am I going to get my money out? And how much are you earning from the business? Having an exit strategy gives you control over your business’s future. You will be ready to sell if some unexpected event arises. There are thousands and thousands of small businesses for sale in Australia at any one time. We estimate that there are over 41,000 businesses for sale right now. With a sale plan in place you will be able to “compete” with the other 40,000 + businesses – and you will have an advantage over the others which will help you to sell over the others. Buyers will be pick and choose only the best businesses. Having a plan in place will put you amongst the best.

Year of the Dog – Happy Chinese New Year

Is this your year for a business opportunity?

  Dogs are known for their loyal, affectionate nature in the family environment, and are very hard working and obedient when trained and treated fairly. These tendencies are clearly visible in Chinese Astrology, which predicts strong fortunes for hands on, initiative driven, ambitious people this year. As 2018 is the Year of the Dog, for many people this is could be the ideal year to pursue a business or real estate opportunity. So what does 2018 hold for you? Could this mean that a business or real estate opportunity is waiting for you? Perhaps you are considering the option of owning your own business or selling your current one. If you don't know where to start, you have come to the right place. At Benchmark, we have Chinese brokers in 3 different states. Each of them specialise in their own divisions and would be happy to assist you. They speak fluent English and Chinese; communicating with Chinese buyers and sellers for a win-win outcome.   Lily Small – Brisbane Lily understands the importance of having strong communication skills with clients (Buyers or Sellers) – something that she prides herself on. She has great networking skills and a network of Chinese buyers and sellers. She is becoming one of the best Chinese business brokers in the Brisbane area. Click here to view her profile and her listings. Jack Lee – Sydney Jack has gained inside knowledge of both Asian and Australian business cultures through working and living in multiple countries. Jack has the advantage of diversity and also speaks Malaysian as well as English and Chinese. He is based in Sydney and would be happy to assist you with investment opportunities. Click here to view Jack's profile and listings. Yiling Tang – Adelaide Yiling is known for her outstanding service in the Adelaide office. She has many characteristics that have been passed from her previous profession as a medical professional. She has the ability to problem solve and is extremely passionate about being a broker. Click here to view Yiling's profile and listings. Rooney Zhou – Sydney Rooney made his debut by delivering marketing projects to nail down distributors and high-profile investors from China to businesses in Australia, predominantly the manufacturers and merchants of wines and other consumer goods. He has highly skilled in marketing. Click here to view Rooney's profile and listings. Contact one of our Chinese Business Brokers today to discuss buying or selling options. Wishing you a happy Chinese New Year; full of wealth, health and prosperity.      

WHY ARE YOU DOING THIS? Why are you in business? Did you get into this business to: -      Make a lot of money? -      Enjoy your passion? -      Grow the business and then “Flip” the business and make a profit on the sale? Is there any other reason to be in business? What is your “Why?” Do you know why you are doing this? Have you achieved what you set out to achieve? .. has the passion started to wane? Did you start out with boundless energy – and now you have a lot less energy? Have you “Lost Your Mojo”? Then perhaps it’s time to look at why you are doing this, and how to prepare to eventually (and inevitably) leave the business. When people start out in business they follow a pattern. The sequence is:

• Dream
• Goal
• Plan
• Action

Everything starts with a ”Dream”. Over time that dream becomes a reality. Not always the way we dream it!… But through planning and action – it becomes reality. Goals are set (consciously or unconsciously) to make the dream come true. Plans are created to reach goals. Nothing is achieved without action. Usually the Dream stops at the plan to get into the business, and to start trading. Unfortunately, that’s when the dream can become a nightmare. Dreams. Goals. Plans. Action. We should have these things in place for the whole journey. Not just for the startup, but from start to finish….. And the finish is the most important part. That’s when you “cash out” and walk away. So let’s look at the Dreams, Goals, Plans, Action to complete the process, and to exit your business on your terms… and reap the greatest reward possible. – Before you run out of energy and lose your “Mojo”!

Health Check Your Business – Sell Your Business On Your Terms

As the title says, selling a business on your terms has its rewards and subtle benefits. Many times, I have been out and about speaking with business owners regarding possibly selling their business, or having discussions surrounding their “exit strategy”, and asking if they actually have one in place. I’m always surprised at how quickly the business owner responds along lines of… “why would we want to sell, were making good money” or… “we may look at doing something in 5 years” or… “we haven’t really thought about selling yet or even an exit strategy”. As a broker, I meet regularly with accountants and the main topics of conversation are usually around … -BUSINESS PLANS -CASH-FLOW PROJECTIONS -EXIT STRATEGIES -PLANNING FOR GROWTH There are far too many business owners operating businesses with not even one of the points mentioned above in action, (or written down) that they could speak confidently about – not one! How can this be? What’s the solution? One of the best things a business owner could do “to sell a business on their terms”, is this; engage with a professional business broker (one they trust & feel comfortable with) so a due diligence on the broker is recommended, as they are not all the same, and then do “A Health Check” on the business. The health check covers many crucial aspects of the business, things that business buyers usually “drill down” on. So there should be no shortage of preparing and planning when the decision is made to either sell or exit the business at a desired time frame. A good broker will discuss the specific aspects mentioned below because they know that once these are all in order – the Seller is in a stronger position. The Health – Check List -      Up-to-Date Financial Data – historic and future projections, BAS Statements, Tax Returns -      Current Lease Agreement – Tenure, Options, Bank Guarantee, -      Stock Level – Current and Old Slow-Moving Stock -      Staff – Super, Holiday Pay, Long Service Leave, Employment Agreements -      Creditors & Debtors -      Plant & Equipment – Unencumbered, Encumbered -      Suppliers – Written Agreements -      Fringe Benefit & Capital Gains Tax (Accountant’s field) Once the business is placed on the market to sell, and knowing that everything mentioned above is sorted and is in good shape (Health Check), then you can sell your business on your terms. The business owner can go about their day-to-day running of the business knowing everything is in order and that they have a good solid business ready to be presented to the market – without any grey areas. At the end of the day having everything in order is potentially going to save a business owner thousands of dollars, when the negotiations start because they are ready. Also, – and this is crucial, you will be in a better position to offer your business to the market that any other similar business. Don’t forget that there are many, many other business owners who will be looking to sell in the future. You need to give yourself the ability to compete with those other business owners, and get a superior result that they can’t get – all by being ready, and that starts with the “Health Check”. Ian Salter – https://www.linkedin.com/in/iansalter/ Senior Broker – Benchmark Business Sales & Valuations View Ian's profile by clicking here.

Important Points That All Business Owners Should Consider…

  1.  Is your business able to be sold? 2.  How quickly can it be sold and turned into CASH? 3.  Who would buy your business and why? 4.  What will someone pay for it? 5.  Who would pay the most for it?   Here is a simple exercise for you to try.   Imagine that you own a transport company with 50 vehicles, contracts with key clients, and offices in three states. Who would you think is the most suitable buyer for that business?   How would you prepare to approach them? What information would you be prepared to give to them?   Now apply the five questions (above) to your thinking about the sale of the business. Has the answers to the 5 questions altered your approach to how you would sell the business?   Now think about these answers in the context of a café, in a small country town. Will the answers be different? Will the approach be different for a café, to the approach adopted for a transport company?   All business owners should regularly ask themselves these five questions, and continually adjust their business management and plans to achieve the right answers to these five simple questions. At Benchmark, we have specialised brokers in different divisions, that can help you sell your business. Click here to visit our specialist divisions on our website or send an enquiry to admin@benchmarkbusiness.com.au so that we can help business owners like yourself, sell your business.

Are you a business owner? Lost your mojo?

Is it time to start thinking about what is next? Rather than getting back onto the “treadmill” you should start now to plan for your eventual exit from business. Start the New Year fresh, by considering some selling options for your business. Benchmark Business Sales have over 60 brokers Australia-wide that specialise in all industries. If you are a Business Owner, contact us today on 1300 366 521 or send an email to admin@benchmarkbusiness.com.au, to start thinking about selling your business…. It’s got to happen one day – start getting ready now, before it’s too late.

We can help you. 

"Giving Back"

Benchmark Charity Program

There are hundreds of non-profit organisations around the world that help those who are less fortunate or support a cause. Christmas is the season for giving, which is why this year Benchmark started a ‘giving back’ charity program. At settlement, Benchmark give Vendor’s an opportunity to select which charity they would like to donate $100 to. This supports the amazing work that charities do, and helps those who need a hand. Our selected charities for 2017 were: ·      The Animal Welfare League, ·      Indigenous Literacy Foundation, ·      The Water Project, ·      Soldier On, ·      Complete Men, and ·      Young Care. Information about the charities: The Animal Welfare League is a not for profit organisation that cares and rehomes up to 15,000 stray and abandoned animals a year. Click here to visit their webpage. The Indigenous Literacy Foundation gifts new books and literacy resources to indigenous kids and families in remote communities. Click here to visit their webpage. The Water Project has local teams who build water wells, small dams, spring protections and other water sources. Click here to visit their webpage. Soldier On supports those who have served by focusing on their physical and mental health, community and their future. Click here to visit their webpage. Complete Men is a social enterprise with a mission to help, support and inspire men of all ages to reach their full potential. Click here to visit their webpage. Young Care is an Australian non-government organisation who assist people between the ages of 18 to 65 with high care needs. Click here to visit their webpagepre.   Throughout 2017 Benchmark donated to all of these charities, and will continue to do so with all future settlements. We would like to take this opportunity to thank the Vendor’s that have chosen Benchmark to be their selected brokers and for supporting this program.

We wish everyone a Merry Christmas and a Happy New Year.