Next Generation Failing to Provide Succession & Exit Solution for SMEs Business Owners
Many family businesses struggle with the concept of succession and retirement and ignore the issue believing that their children or family members will provide the solution to their exit aspirations.Unfortunately, Baby Boomer SME owners in growing numbers are confronting the reality that the next generation has little interest of following in the parents’ footsteps and
taking over the ownership of the family enterprise.
We find that SME owners often put the majority of their efforts into building the business with very little thought given to planning for succession, even though many experts will attest that
the best exit and succession plans can take between five and seven years to deliver the desired outcome.With the family succession option failing to materialise and providing an orderly transfer of ownership for SMEs,the case for sale to employees through management buy-out can provide an alternative solution in many cases.
However recent surveys have found that 38% of owners were unaware of the employee buyout option and further 44% considered employee buyout as unlikely or very unlikely. Now, employee
share ownership plans have become another avenue for business owners to extract wealth from their business. We have seen first-hand some very real success stories years whereby a
bit of innovative thinking via employee incentive plans in the form of profit share schemes have underpinned a mechanism for funding succession initiatives.
Succession Plus uses a unique and proven approach to ESOP’s called a Peak Performance Trust,which we developed specifically for small to medium privately held businesses who are looking to
attract, retain and motivate key staff by involving them in both the equity and control aspects of succession planning. This succession strategy has been used successfully by a growing number of
business owners throughout Australia looking for an innovative approach to their exit aspirations.
Some of the benefits of a Peak Performance Trust include:
Employees do not have to fund their acquisition of equity, as it is a self funding program
Employees are encouraged to think and act like business owners, because they become partial business owners
Business performance will improve in terms of both sales and reduced costs (resulting in improved profitability)
Owners are also able to maximize the sales price as the initiative creates greater business value by
making the business more attractive to potential buyers
It is essential that SME owners start planning an exit strategy as soon as possible in order to reap the rewards from an enterprise
created over a lifetime of hard work and dedication. Implementation of Employee Share plans can have substantial benefits for SME
owners, but they can take time to be fully implemented.
Whichever exit option you choose must be right for your personal circumstances. Knowing which options you have available,
and where to start is important in developing your succession plan, which should be started sooner rather than later.