Reproduced from PwC ( Price Waterhouse Coopers) website – February 25, 2014 – written by Matthew Charles
A lack of exit planning by Australia’s growing and ageing population of private business owners could have serious consequences on the owner’s wealth; the business’s productivity, employment and even survival; and cause a ripple effect throughout the economy.
Analysis by PwC estimates that at June 2024, a third of the 1.54 million private business owners will be over the age of 55. During the next 10 years more than 1.4 million owners employing over 7.9 million people and contributing almost $500 billion in GDP, are expected to retire.
While a surge in business exits sparked by retiring baby boomers has long been anticipated, the Global Financial Crisis slowed the pace and volume of exits as many owners decided to stay in the workforce longer. Australia’s ageing and growing population of private business owners coupled with strengthening economic growth suggests a wave of exits is now imminent.
An oversupply of businesses for sale will create downward pressure on price and owners may be required to sell their business for less or if they can’t find a suitable successor, forced to shut shop.
“A successful transition from one owner to another brings new passion, energy and life into a business enhancing its productivity, as well as contributing to the personal wealth of the seller,” PwC partner Sue Prestney said.
“Selling for less or shutting shop should be the last resort as owners have missed an opportunity to grow their wealth,” Ms Prestney said.
Given the scale of those planning to exit, multiple failed business transitions may have a knock on effect in the wider economy including increased job displacements and dampening innovation. Yet survey after survey reveal the majority of businesses are ill prepared for their exit.
“At a time when the government is looking for policy options to trigger greater efficiency we’d like to see more being done to help business owners prepare for retirement,” said Ms Prestney.
“Financial assistance for strategic exit planning advice, incentives for business innovation prior to sale and a reduction in the current taxation barriers that disincentives succession, such as reform to the current Employee Share Scheme, will go a long way to helping owners transition their business.
“We understand that these changes will come at a cost, however, the impact of doing nothing could be even greater as less personal wealth in retirement may increase reliance on government support.”
Business owners also have a role to play in securing their future.
“Often owners have a lack of understanding of the process, they fail to get the right advice or they don’t have enough time to plan. “Many business owners who prolonged the sale of their business in the Global Financial Crisis have not had the capital or risk appetite to innovate or invest in their business. When it comes time to sell they haven’t built the blue sky potential that buyers are looking for and owners are forced to lower their sale expectations or look for other exit options,” Ms Prestney said.
“And while succession to a family member or existing management can inject new ideas and innovation into a business, finding a willing and capable candidate to take over the reins can be difficult.”
“Exit planning requires owners to take a step back to review their best option. It’s never too late to start planning though planning early will help maximise the outcome.”
Privately owned businesses play a significant role in the economy. Almost 70 per cent of businesses in Australia are privately owned and collectively they comprise 66 per cent of the economic output and two thirds of employment.