As business owners get older and contemplate slowing down the question they often ask is ‘who is going to buy my business?’ However, selling the business is not the only succession strategy that should be considered.
We often find that when we inform clients of the real value of their business they then realise that if they were to sell their business and invest the proceeds, they will see a substantial reduction in their disposable income. With Australian small to medium businesses typically valued with EBIT (Earnings Before Interest and Tax) multipliers in the range of 2 to 5, underlying pre-tax yields are therefore in the range of 20% to 50%. The yields from traditional investments are unlikely to come anywhere near the yields generated by the business.
We are seeing more business owners setting themselves up to retain their businesses without having a significant active involvement in the business. By ensuring that there are good systems, robust reporting and a sound management team in place, business owners can step aside and reap the high returns from their business without carrying the day-to-day responsibility. We believe that this will become a common way of dealing with business succession.
Having good professional advisors is an important part of making this strategy work. Saward Dawson is well equipped to help business owners withdraw from active involvement in their business and retain a sound investment interest by assisting with:
- Systems and procedure reviews
- Assisting with people management and development processes and strategies
- Ensuring that management reporting is timely, accurate and relevant
- Working with the business management team in strategic planning and business review
- Coaching of the business management team
- Regularly reviewing the business performance