With four in five business owners pushing retirement, succession planning is a looming issue for brokers - but new research shows owners may not be looking close enough to home to find the answers.
With four in five business owners pushing retirement, succession planning is a looming issue for brokers - but new research shows owners may not be looking close enough to home to find the answers.
Statistics show over a third of Australia’s brokers are now over the age of 50, with many of these experienced brokers running their own brokerages.
As retirement looms, many of these business owners will struggle to decide on their next step, says Craig West, CEO and founder of Succession Plus.
“Unfortunately, the stark reality for many owners will be that they are unable to find buyers willing to pay an acceptable price for the value they have created or family members prepared to take over the reins. More and more are facing the very real reality of simply turning of the lights and walking away,” says West.
In many cases, confronted with the perils of forced exit, owners simply can’t see the forest for the trees and miss an obvious option: selling the business to existing staff.
Recent surveys by Succession Plus found that 38% of owners are unaware of the employee buyout option and a further 44% consider employee buyout as unlikely or very unlikely.
A method that has proven successful in a number of businesses is the employee share ownership plan (ESOP), says West.
This generally involves an employee incentive plan whereby shares are gradually sold to employees based on profit share.
The benefits of these kinds of plans are far-reaching, says West, including:
- Key staff have an equity stake in a business with real ownership and a tangible value
- Over time, staff can increase their stake in the business via performance improvement, additional contributions, salary sacrifice, etc
- Business owners have a predetermined sales strategy with identified buyers and an agreed evaluation formula to calculate the selling price
- Owners are also able to maximize the sales price as the business value increases with improvements in performance
West suggests owners of brokerages need to start thinking seriously about whether or not their brokers could be the next business leaders – long before retirement age is on the horizon.
“The message that must be heeded by all SME owners is that the time to start planning an exit strategy is now in order to reap the rewards from an enterprise created over a lifetime of hard work and dedication.”
