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Happy Ending Strategies for SME Owners

Under normal circumstances, most business owners do not wake up one morning and decide to put in place an end plan for his/her business. Apart from the fact that there are always more pressing matters to deal with, the term “end plan” is probably too negative to inspire anyone. 

That is understandable.

However, if one does not have an end plan for his/her business, the ending could be really unhappy, even very ugly and painful, when the family have to decide what to do upon inheriting the business. Regrettably, awareness of this dreaded outcome is neither widespread nor adequate. 

This article will highlight the criticality and significance of an end plan for business, with a view to raise awareness and enable our community of business owners to make informed decisions on what is, to many of them, their most valuable and biggest asset.

Post-exit Options

When a business enterprise outlives its owner, the family members have to decide what they want to do with the business enterprise or the equity share they inherit. In such an event, the family members have 4 choices (see table below).

However, deciding what to do with the business is just one part of the end plan. The more important and tricky second of the 2-part end plan is the strategy to secure a desired outcome for the family, whether the preference is for them to continue or cash-out. 

Indeed, the need for a business owner to put in place an end plan is because post-succession continuity and selling to surviving owner/outsider are never a given. Real and serious threats always emerge to threaten business continuity, when succession takes place. And there are very tall legal and financial barriers to cashing-out by sale, as well as default risk. On the other hand, liquidation and winding-up is characterised with huge losses.

In short, an end plan for business is a game plan to guarantee post-succession continuity, profitable exit, painless settlement or full recovery, when the time comes.

Post-exit Option 1:
Family Succession When a business owner desires to eventually pass-down the business for his/her family to continue, it must be his/her hope that the business enterprise will continue to exist and thrive, long after him/her. And wise business owners do not leave this desired outcome to chance. They put in place a business succession plan. 

But make no mistake, business succession planning is as much about ensuring continuity in the hands of the successor as it is about empowering and enabling the successor, if not more. After all, why bother if the business is not going to survive? 

To ensure that the business enterprise will continue to exist and thrive in the hands of the next generation, the business succession plan must address all real and potential continuity threats, both internal and external. But interestingly, typical business succession plans are neither robust enough nor complete as they tend to only focus on areas such as power control and conflict management – areas that address internal continuity threats. 

On the other hand, solutions to mitigate external continuity threats such potential liquidity crisis arising from withdrawal of support by creditors/financiers, economic slowdown and the resulting adverse chain effects, which are probably more real than internal threats, are often quietly left out.

Let us get this right, a business enterprise can still have more than an even chance to survive an internal conflict and power struggle. However, it is less likely to prevail when sudden and serious liquidity crisis sets in, especially during the critical succession transition period. 

Put it another way, it is definitively safer for the company to have substantial additional capital injection when succession takes place than to just have a typical business succession plan that is not fortified with extra capital. EXITCompensation™ for Post-succession Continuity is such a capital injection plan. 

Please note that there is more than one way to put in place the above-mentioned plan, which is sometimes referred to as Post-succession Continuity Assurance™. And the suitability of each arrangement is based on the business owner’s circumstances and preferences. More importantly, depending on entity type and other circumstances, the business owner may leverage on the Post-succession Continuity Assurance™ to obtain indirect recurrent and/or deferred tax benefit.

Hence, please do ensure that your adviser/planner is a graduate of Bluefin Academy, which is the only school that enables financial services practitioners to qualify as EXITCompensation™ Planners. They are also the only advisers/planners that are supported by Bluefin Academy.

If you like to know more, our Chief Trainer would be delighted to assist. Talk to him.