Industry
– NDIS
Background
After building their NDIS business the owner in their late 50’s is seeking to retire and sell the business to 3 key employees in the next 5 years.
Other factors and considerations
Having invested their life savings into building the business the owners would like to fund their retirement by selling the business when the time comes.
Solution
With an agreed 5 year transition period a staged succession plan is implemented.
As a starting point a business valuation is carried out with a tailored valuation.
A formula set, this governs the valuation at each transition point.
As the employees identified to take over the business did not have independent backing, the first tranche of 30% of the company shares split between the 3 employees was funded by the existing business owner.
The agreement including interest and penalty provisions and included a 3 year pay down period with a minimum of 50% of the profit share to go towards paying down the loan.
The business owner takes the opportunity to minimise their taxes on this sale by contributing part of the payments to their superannuation fund.
At the 3 year mark second tranche of 6% each is transferred, with the combined profits of the shares held paying down this second loan in under 2 years.
With the employee group now holding 48% of the company and continual company growth, the bank is happy to fund a loan to the business to pay out the original business owner in full to complete the transition.
Outcome
With the business consistently growing at 15% per annum the final share sale value is higher than the original whole business value.
The business owner is able to retire comfortably with the additional benefit and piece of mind that the business they built is in good hands into the future.
They have not had to take on the risk of vendor finance, using available retirement concessions they are able to pay minimum tax on the sale of their business.
The employees participating in the plan are now the owners of a strong business, an opportunity they would not have been able to access if not for the implemented plan.