Across all sectors and industries, succession is a concern for many business owners. It does not matter whether it is an external sale or a passing of the business to another generation within the family. If the process is not well communicated and not well planned, then succession can be fraught with difficulties.
Succession planning is about transferring control and ownership of your business to others. In New Zealand research indicates that up to 40% of business owners will look to retire within the next 10 years. SMEs need to plan for the transfer of ownership early in order to focus on extracting capital value from their businesses. With an increasing number of businesses expected to come onto the market in the next few years the importance of carrying out quality long-term succession planning in order to exit from your business is crucial.
The ideal timetable for an effective succession plan is three to five years from initial plan through to final succession. In a perfect world we would recommend a minimum of two years to prepare the business for sale. Preparing the business is essential in maximising business value and the capital you eventually extract from your business.
A clear succession process provides a structured plan, enhances efficiency, assists in delegation of key elements and provides for greater certainty of a successful outcome. You need to start planning early. Key steps include:
- Selecting and meeting with a good team of advisors.
- Communicating with all stakeholders.
- Exploring all options available (keep an open mind).
- Finding out what your business is worth.
- Prioritising where you see your future and direction. When is the right time to sell.
- Keeping a written plan and update it regularly.
Good profitable businesses have more options. That is, businesses that generate annual cash surpluses that can either be reinvested back in the business or taken as dividends give the owners more options for succession. If a purchaser requires outside money to purchase a business, constant year on year profitability makes it easier because potential investors or lenders can clearly see where the business has been and where it is heading.
Your Nexia Corporate Services team is a key part of the succession planning process. They bring skills to the entire succession planning process. Their expert advice and assistance can ensure that you are prepared and ready to eventually exit your business.
For more information, contact:
Nexia New Zealand
T: +64 3 379 0829