in Small Business
Issue No. 2 - September/October 2001
Planning Your Escape from Small Business
by Max Baldock
MAINTAINING EQUITY
Politicians of all persuasions are quick to acknowledge that the small businesses of this country are the backbone of the Australian economy. Over the past few years, small business owners have had to withstand the impact of such phenomena as globalisation increasing competition (particularly from corporations), market changes, government regulation and of course the dreaded GST.
However there is another issue that is more fundamental to the survival of these small businesses than any of the above — maintaining or increasing the equity (the value remaining in excess of any liability or mortgage) of the business.
Many owners of small businesses view the capital invested in their businesses as their own, managed (and in many instances sole) superannuation schemes, which will be realised by sale or succession upon their retirement. However, far too many of these owners have no equity maintenance plans in place, let alone succession plans. In fact billions of dollars are lost each year as businesses fail or are sold well below their initial capital value.
The results for thousands of Australians, many of which fall in the “baby—boomer” category, are disastrous, particularly as they face their retirement years with limited resources. It is ironic that in too many instances, thanks to compulsory superannuation schemes, the employees of these people are better placed for their retirement years than their employers.
An example or two of all too familiar scenarios might be illustrative:
Harry started his own business in the late 1970s to service the commercial and handyman world. It relied on purchasing plant, much of which had a life of 5—10 years before replacement.
By the mid—1980s the business was flourishing and his lifestyle was better than average. However during the 1990s his business came under competition from interstate operators and this intensified as the decade continued.
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