Peter Langham: helping your SME clients pass on the baton

Brokers play a crucial role in succession planning for small businesses, writes Scottish Pacific's CEO

The massive wave of baby boomer business owners reaching retirement age has brought to the forefront the question of how best to fund succession.
It’s estimated that the boomers own around 80% of Australia’s small to medium businesses, accounting for approximately $3.5 trillion. 

For SME owners using personal property as security for these businesses, the question is how best to pass the business baton on to the next generation?

In particular for family businesses, the owners are looking to realise the wealth that has been locked into their enterprises, but at the same time they don’t want to create for their children too great a financial burden in taking ownership of the business.

Opportunities for brokers

Brokers looking to diversify their revenue streams would do well to keep a close eye on clients who fit the succession planning profile, because debtor finance can be an ideal solution for a variety of succession scenarios.
The reason debtor finance offers such an appealing solution is that the finance is structured in a way that can provide an optimal outcome for the buyer as well as the seller.

Whether the acquiring party is family, part of the management team or an unrelated party, their ability to meet not only the purchase price – but crucially, being able to provide for the ongoing working capital requirements of the business - is absolutely essential to achieving a positive outcome for buyer and seller. 

We have provided debtor finance over the past thirty years to countless retiring business owners who want the best price for their business but are concerned that having their personal assets tied to business funding may stymie the number of potential purchasers as well as the purchase price.

Debtor finance a win-win for buyers and sellers

Debtor finance is a line of credit that grows in tandem with turnover, which makes this style of finance an ideal solution for growth businesses. 
A typical debtor finance facility will provide 80% of the value of the receivables upfront, without requiring real estate security. 

As debtor finance is secured against receivables (a business asset), this style of working capital facility provides great continuity because the financier's risk is with the business, not the owner. 

Having debtor finance in place means the sticking point of ongoing working capital facilities is taken off the table when the business owner and their advisors are negotiating with potential acquirers. 

In the case of a family succession, debtor finance can allow successors to raise the purchase price, or if necessary to pay out siblings, while at the same time removing from the business the personal risk that comes with property security.

Debtor finance ensures that the seller of the business has the most options, because they are not ruling out selling to management or family purely because they are trying to optimise sale price and that person does not have the money to pay for the business.

The win-win nature of this financial solution makes debtor finance well worth consideration for brokers with clients looking at succession planning, and could create a whole new revenue stream for diligent brokers.


Peter Langham is CEO of Australia’s largest specialist provider of SME working capital solutions, Scottish Pacific (ASX:SCO). After training as an accountant, Peter has had 30 years’ experience in the debtor finance industry, overseeing significant growth at Scottish Pacific which is now an ASX 300 company. www.scottishpacific.com

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