COVID-19 has thrown a spanner in the works of succession plans for many Australian businesses.
Uncertainty around pricing and market conditions has prompted some owners and operators to delay their transition until the economic outlook clears.
While there is a range of reasons businesses may prolong succession, in some cases the sensitive issues to be addressed may be compounded the longer it’s put off.
A recent survey sponsored by William Buck found that more than one in five (22%) respondents considering a transfer of ownership just prior to and during the pandemic, had delayed their plans due to the pandemic.
There are a number of reasons why this could be the case.
Particularly where succession involves transferring the business to an employee, uncertainty around prices and potentially survival of the business can cause transition jitters.
For some businesses, the COVID-19 experience has reduced profit and therefore the ultimate price tag of their enterprise.
On the other hand, overinflated profits due to some stimulus measures may be pushing the price above what buyers are likely to pay.
Either way, price uncertainty can lead to cold feet on both sides of the equation.
Australia is not out of the pandemic woods yet and sporadic lockdowns can prompt sellers and buyers to adopt a more ‘wait-and-see’ approach with the market.
Implications of delay
Timing is crucial in succession planning and getting it exactly right is not easy.
There can be very legitimate reasons for postponing a succession.
As the seller you want your business to be at peak performance with a positive outlook when it comes time to negotiate with a buyer.
For the owner, there are also often personal lifestyle circumstances and objectives that need to align – from an investment, retirement and health point of view.
At William Buck we have seen a number of businesses that had put their plans on the back burner last year, now pushing ahead again.
That’s very encouraging.
With delay does come an additional number of considerations of which to be aware.
A key one is maintaining buyer interest. As timeframes lengthen out, there is always a risk that a potential buyer may lose patience and look elsewhere for investment opportunities.
The buyer’s circumstances may also change over time meaning they are no longer in a position to purchase the business when it’s finally on the market.
For an owner already eyeing off retirement, there may be the added risk of maintaining their performance focus in the business, which ultimately influences its sale value.
There is always an element of uncertainty when planning into the future.
From the outlook for interest rates and credit availability to implications around the vaccination roll-out and changing family dynamics, all may need to be taken into account when deciding on the timeframe for succession.
Regardless of whether a business is ready to execute its succession plan right now or is considering pushing it out for another year or two, seeking reliable professional advice throughout the process is paramount.
That way, the best possible result can be achieved no matter what timeframe aligns with the owner’s circumstances.
For more information please contact your local William Buck advisor.