How two sons have done their parents proud
A successful ownership transfer precedes second generation business success
In the beginning
When Rod and Mary (not their real names) first approached us to be their accountant and business adviser they were grappling with some complex issues and requirements. Whilst the family enterprise was providing a comfortable level of income, its residual value fell short of what they needed for their retirement, an event which they wanted to trigger within the next 3 to 4 years. Their preferred scenario was to sell to two sons, Phil and Steve, working as operational managers in the business but not yet ready to run it. Naturally, Rod and Mary wanted to do the right thing by their sons and give them a great opportunity but not at the sacrifice of their retirement funds. There were also some significant tax issues lying dormant that would come to life with a change in ownership. Further, it was increasingly apparent that their interstate, aging accountant was not the person to steer them through the upcoming challenges.
When Rod and Mary (not their real names) first approached us to be their accountant and business adviser they were grappling with some complex issues and requirements. Whilst the family enterprise was providing a comfortable level of income, its residual value fell short of what they needed for their retirement, an event which they wanted to trigger within the next 3 to 4 years. Their preferred scenario was to sell to two sons, Phil and Steve, working as operational managers in the business but not yet ready to run it. Naturally, Rod and Mary wanted to do the right thing by their sons and give them a great opportunity but not at the sacrifice of their retirement funds. There were also some significant tax issues lying dormant that would come to life with a change in ownership. Further, it was increasingly apparent that their interstate, aging accountant was not the person to steer them through the upcoming challenges.
The 18 month road to success
The approach developed for Rod and Mary was to make their business saleable, for their desired financial outcome, within 18 months. Clearly, there was work to be done!
Shortly after our appointment we instigated an enhanced financial management discipline, designed not just to significantly improve profit but to help prepare the sons for ownership. We prepared a month by month budget for the 18 months, reflecting a range of measures designed to significantly improve the bottom line. Quarterly management meetings were instigated, becoming a forum to actively strive for better performance. Our involvement accelerated the business acumen of the two sons, who relished the role they played in improving the business.
In the background, we also developed a strategy to mitigate the legacy taxation issues, together with getting all parties to agree on the formula to value the business such that it would be fair to both buyers and sellers.
The approach developed for Rod and Mary was to make their business saleable, for their desired financial outcome, within 18 months. Clearly, there was work to be done!
Shortly after our appointment we instigated an enhanced financial management discipline, designed not just to significantly improve profit but to help prepare the sons for ownership. We prepared a month by month budget for the 18 months, reflecting a range of measures designed to significantly improve the bottom line. Quarterly management meetings were instigated, becoming a forum to actively strive for better performance. Our involvement accelerated the business acumen of the two sons, who relished the role they played in improving the business.
In the background, we also developed a strategy to mitigate the legacy taxation issues, together with getting all parties to agree on the formula to value the business such that it would be fair to both buyers and sellers.
The outcomes
Happily, the program was a complete success. Rod and Mary sold the business for an amount well in excess of their expectations and have now retired. At the same time, the price represented an opportunity for Phil and Steve, who relished the idea of taking on the business.
The reporting system and management controls we put in place, along with the improved profit performance, made a compelling case for the Company’s bank to provide 40 per cent of the capital sum required, with vendor finance providing the balance. Happily, the boys are well ahead on repaying their loans, thanks to the business exceeding its targets, which in turn have been underpinned by favourable trading conditions. Prudently, they have continued to retain the services of Hansens for ongoing guidance.
Happily, the program was a complete success. Rod and Mary sold the business for an amount well in excess of their expectations and have now retired. At the same time, the price represented an opportunity for Phil and Steve, who relished the idea of taking on the business.
The reporting system and management controls we put in place, along with the improved profit performance, made a compelling case for the Company’s bank to provide 40 per cent of the capital sum required, with vendor finance providing the balance. Happily, the boys are well ahead on repaying their loans, thanks to the business exceeding its targets, which in turn have been underpinned by favourable trading conditions. Prudently, they have continued to retain the services of Hansens for ongoing guidance.
In their own words
From Rod – “We’re truly grateful for the assistance that Hansens provided. We felt from the outset that we were in good hands and to secure our perfect scenario is a dream come true.”
From Steve – “Hansens helped Phil and me to become the businessmen we needed to be in order to take over the business. Armed with what we’ve learned, plus a bunch of our own ideas, we feel well placed to take the Company into the future. Bring it on.”
From Rod – “We’re truly grateful for the assistance that Hansens provided. We felt from the outset that we were in good hands and to secure our perfect scenario is a dream come true.”
From Steve – “Hansens helped Phil and me to become the businessmen we needed to be in order to take over the business. Armed with what we’ve learned, plus a bunch of our own ideas, we feel well placed to take the Company into the future. Bring it on.”
