David O’Connor, Platform 1

Many aging business owners have worked hard all their lives and are at a stage where they have built up a business that has given them a good income and lifestyle and it’s part of who they are.

They know they should do something at some stage but often the easiest thing to do is to delay, however procrastination can be costly, not just in lost time but in missed opportunities to secure the future of your business.

The earlier you start planning the more options you will have.

There are many different reasons we hear for procrastination in relation to exiting a business :

• “I have still got 5 years in me”
• “Nobody has the knowledge to run it like I can”
• “What if I don’t find anyone?”
• “But someone offered me $5M 5 years ago…”
• “The market and our sales are down so maybe I should just delay until next year ?”
• “What exit options do I have ?”
• “Do my kids even want to take over and do they have the skills?”

If you’re considering an exit plan, start now rather than focus on the “why not” to ensure the best outcome for you and your business. Talk to someone who has experience in this area and understands the various options.

   “ There is no one exit option that is right for all business owners “

Our advice is to review all the options before make a decision. Options could include :

• Your staff (Management Buy-Out)
• An Outright Sale
• Business Owner Transition (Management Buy-In)
• Merger
• Private Equity – If you are big enough

Most people understand the outright sale process and it can be a go to strategy simply because it’s well known. It’s the right option for some business owners but not others.

The options of MBO and MBI and how to structure them are less well known. Both options need a third-party with knowledge and experience to ensure there is a clear path and governance.

“If the staff member ticks all the boxes this can be a great option but you should do your research as it is not enough that you just like and trust them.”

If you are looking internally at someone you know and trust ask yourself these questions :

Has the person previously expressed an interest in being a shareholder ? If they have been with you for a while and know you are nearing retirement, and not approached you, it is unlikely they will be interested. People can be great at their job but not entrepreneurial.

While they may be great at their role do they have the capability to lead the business and replace you eventually ? Leadership and management skill-set and understanding of financials are requirements.

Do they have the capital or ability to fund ? Assessing financial capability early is important to avoid wasting everyone’s time.

The next stage is to have a conversation with them.

Next month I will cover another option with a Gradual Management Buy-In from a talented external person with capability, capital and compatibility. This option will allow you to exit over a timeframe of your choosing while working less in the business and still getting both dividends and ongoing capital payments. It also gives you a greater opportunity to maintain your legacy.

Platform 1 specialises in using executive search techniques to find business partners with capability and capital for business owners wanting to partially or fully transition over time.