If you’ve spent years building up a successful business, you’ll be hoping you get the chance to reap the rewards at some point.

You’ll want to step back, cash up, and enjoy either a comfortable retirement, or the freedom to take on a fresh challenge. But how do you find someone to take over the reins?

There are several ways to pass your business on.

Family buy-in

Often the first place a business owner looks is to a family member. This can work if your relative is passionate about the business and skilled – and if you help them make the leap to ownership.

Mark Carley, chief executive of HirePlants, took over the company after his father died. He suddenly had to make important decisions about a business he knew almost nothing about. There was never any plan, or even a conversation.

“It was a huge burden to have to pick up the pieces.”

Five years on, Carley has grown HirePlants’ revenue by a factor of five, but says he certainly won’t be pushing his children into taking over.

Carley has plans to make sure the business will run by itself if something happens to him, and he’s considering a long-term exit strategy for the future.

Employee takeover

You can look within your business for a new owner. Key employees know how the business runs and you can work together to gradually step them up into the ownership role.

In many cases, a major hurdle is getting the money to buy the business. This is where vendor finance might be an option, says Geoff Hamilton, chartered accountant and succession planning specialist at SME Financial.

“Instead of getting one lump sum for the business, the owner is paid gradually in shareholder dividends or with part of the new owner’s salary,” he says.

“It can work because the owner gets to know the business is in good hands and get some of their money in instalments – and a young owner can buy a valuable business on a payment plan.”

Look outside

For most businesses, finding an outside buyer is the best exit strategy. The process of matching a buyer with the right business is a bit like matchmaking. A good broker can help you make your company attractive to prospective purchasers.

Whether a company sells is 80 per cent dependent on the financials, says Suneil Connor, chief financial officer of LINK business brokerage.

“The other 20 per cent includes, among other things, a growth plan for the new owner, how the key employees are incentivised, and the lease terms.”

It’s difficult to put an exact value on a business, but calculations are often based on a multiple of EBITDA, which is earnings before interest, tax, depreciation and amortisation.

Add value to your business

Business owners tend to overvalue their company and expect buyers to automatically see what a fantastic prospect it is.

“Personal goodwill is worth absolutely nothing – we try to move that into business goodwill,” says Connor.

“Get everything you know written down, and create systems for running your business. The easier it is for a 20-year-old to step in and run the company, the easier it will be to sell.”

Creating a succession plan means thinking about potential buyers, structuring your business to improve its value, and improving its financials.

“One of my clients made a succession plan to sell,” says Hamilton.

“He improved his cash flow and reduced his own involvement so much that suddenly he wanted to keep it.”

Tips for succession planning

· Talk to your accountant and a business broker well before you intend to sell. Both can help you make changes that will improve your company’s value, giving those changes time to kick in before you look for a buyer.

· Identify your goals for exiting the business.

· Lock in key employees, whether as part-owners, or with incentives.

· Have a plan for future growth that the new owner can use as inspiration or guidance.

· Improve the company’s financial statements.

· Look around for possible successors and buyers. Be open-minded – it could be a competitor.

First published 28 February 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.