Published May 24, 2011 in the Financial Review, p. 43
The economic uncertainty of the past two years compelled more small to medium enterprise owners to delay their exit from their business.
Chartered accountants RSM Bird Cameron’s latest thinkBig survey found that 21 per cent of SME owners in 2011 delayed their exit date from their business because of the impact of economic uncertainty over the last two years, a result that was consistent with 2009 and 2010.
Despite the negative response, about 40 per cent of owners with an exit plan expect to retire completely or work elsewhere after they exit the business, an increase of 10 per cent over 2010, prompting RSM Bird Cameron to conclude that owners are more optimistic than they were one year ago.
The most likely methods for exiting the business were given as a sale to an outside investor, passing it to a family member or a trade sale.
More than half of SME owners with exit plans expect to leave some time in the next four years.
Significantly, 44 per cent of those with exit plans indicated that the sale proceeds of their business on exit would be the main source of their retirement funds, an increase from 34 per cent in 2010 and 26 per cent in 2007.
Like other advisors, RSM Bird Cameron highlighted the continuing need for owners “with a plan to exit their business to gain more precise information about the value of their business and available tax concessions, so they can maximise income from their future retirement”.
Only one in three SME owners with an exit plan has completed a valuation for their business, and only 44 per cent of SME owners with an exit plan are aware of tax concessions available for small businesses following a sale.
For those owners who expect to pass on their business to family members, only a quarter have a succession plan, although most are not planning to pass on their business within the nest five years.
Planning for business succession needed to start early, said Hall & Wilcox partner Ed Paton.
He warned that the wave of business succession and exits, which had been coming for a while, had been delayed but it was still coming. “Families will need to tackle the difficult issues, plan early, get good advice, communicate well within the family and act when the time is right for the business and the family. If they don’t, then considerable value built up over generations can be lost.”
The Managing Partner of elliotts, Matthew Schlyder, said statistics showed that businesses without succession plans in place were almost twice as likely to fold or suffer a fire sale.
Mr Schlyder said that business succession planning gave a business every chance of survival in the event of a long-term illness or accident.
“It ensures that yourself and your family will receive the true value of your interest in the business, and allow orderly transition of ownership to the remaining partners, family members or key employees, rather than suffer a fire sale.”
- One in five SME owners has delayed their planned exits.
- Of those with exit plans, 40 per cent expect to retire completely.