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Protecting & future proofing your Business and your Retirement – when and how to start succession planning

Published in: TrialBalance

Retirement has become a grey issue (excuse the pun) for business owners. No longer a straight line or finish line in the sand.

A growing proportion of the New Zealand population are living and working longer than ever before. Statistics New Zealand numbers suggest that over a quarter of New Zealand business owners are over 55, defying previous generations by illustrating a longer ability and willingness to stay in business.

What does this mean for business owners?
It’s pretty certain that most will be looking for an exit strategy over the next 10 to 15 years resulting in a scary amount of businesses changing ownership in some shape or form.

The problem with this is that many organisations and their owners aren’t properly planning for this critically important transition. Worse still; many have not even started the conversation on the topic.

It is estimated that the vast majority of New Zealand family owned businesses do not have a formal succession plan in place, documented, and being acted upon. This lack of planning can be putting their retirement, family wealth, business and team in jeopardy for when that time comes. Sadly we have seen far too many business owners scramble to transition their business in a hurry due to some unexpected event like a serious cancer diagnosis of an owner. While we have assisted many, the value extracted could often have been much greater if they had started succession planning and acting on their plan earlier.

Not sure when and how to start?

Earlier the better…
The best time to start succession planning is at the very beginning when setting up the business. However this seldom happens as most startups take a short to medium goal and strategy approach. While in many respects this is understandable and completely normal, they may also be missing out on some significant value creation by not planning early.

If you haven’t yet done so, we urge you to start. Invest by seeking advice from your advisors and starting conversations with your key personnel involved in the business. Starting these conversations at least 5-10 years ahead of planned retirement point should be a minimum if you don’t want to risk not having a buyer and/or devaluing the price. We have all heard of businesses where the owner has left and handed the control over to a family member or internal manager only for it to collapse shortly after leaving immense problems. Not good.

Quick tip: Succession planning has many layers so give it the time it requires to be implemented suitably.

Some quick questions to help start conversations and discussions around forming an Exit Strategy:

  • How much do you need for your retirement?
  • What is the current business worth and what does it need to be worth to achieve my retirement goals?
  • Whom is likely to buy or take over the business? A family member? An employee? A third party?
  • How will the change of ownership occur? – a single transaction or process over time?
  • Who knows the secrets of the business?
  • How would key relationships within and external to the business react to a change in ownership and structure?

Remember that the definition of a true business is something that should be able to run by itself without the owner. Many “businesses” are more akin to a job as they cannot run independent of the owner.

Quick tip: Once a succession plan is agreed upon, documented and set in place it should not be filed, nor set in stone! It should be revisited each and every year. It needs to be agile enough to stay relevant to an organisation’s aspirations and operating environment with appropriate strategies.

Start letting go gradually, to create opportunities to grow your senior leaders
Holding all the most important cards as part of your portfolio as business owner makes you extremely difficult to replace. It also represents a significant business risk if key knowledge is held by the owner and they suddenly cant be there. This makes your business difficult to transfer/sell and leave as you are the business! This is not what you want.

Begin to let go of key tasks, relationships & delegate decision making to your senior leaders. This will take them out of your shadow and give them the opportunity to grow under your guidance and mentoring. At the same time investing in their learning and development will also provide them with the confidence to take over if and when a leader retires.

Quick tip: Being able to identify, develop and retain key talent to succeed you is particularly important for the ongoing success of any business.

If family is involved and taking the reins, be extra diligent
If children are going to buy the business, they need to be ready. Having honest conversations and fair and objective processes in place to ascertain their ambitions and business aptitude are essential. Other factors such as blended families with children from prior relationships can create additional challenges, as can fairness between children.

Quick tip: Implementing training in some key areas such as management, business operations, leadership and corporate governance is highly recommended especially if the organisation is large.

Seeking and surrounding yourself with professional business advisors
It is important to ensure all options are considered and a plan is worked through correctly. To make sure you haven’t missed anything, sit down with your trusted business advisor so they can help you objectively identify and work through the issues.

With independent professional advice you can help ensure that when the time comes for selling your business you are getting maximum value and a smooth transition.

Quick tip: Transitioning owners out of a business involves various expertise. Accounting, valuation, systems and processes, negotiation and contract law are key areas which require specialists to be part of and relied upon.

 

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RSM New Zealand Group

RSM consists of three New Zealand member firms of the global international audit, tax and consulting group - RSM. RSM is represented by three local, long standing firms in New Zealand, RSM New Zealand (Auckland) Limited and RSM New Zealand (Auckland North) Limited and specialist audit and assurance firm RSM Hayes Audit. The legacy of the representative firms spans over 70 years in Auckland and offer local knowledge and worldwide connections which allow us to provide the best possible resources for our clients.

RSM provides a full range of accounting and advisory services and we are committed to helping you grow your business. As well as what you would expect from your accountant, we also provide specialist services in Audit, Tax and Business Consultancy to clients across a diversity of industry sectors.

As a firm we provide strong service benefits to our clients. Our simple structure enhances business efficiencies and underpins our client focused culture, ensuring ready access to our partners and senior team members.

We seek to bring you the best of both worlds. Expert local experience combined with the sixth largest international accounting network of independent audit, tax and advisory firms.

Region: Auckland

Phone: 0800 774 623

Accounting HQ Limited

Accounting HQ Limited is a client focussed chartered accounting firm. We believe in supporting our clients in all their financial matters and although we are a small friendly local firm we do offer a full range of accounting services for all requirements.
Accounting HQ Limited Chartered Accountants (CA) came from the merger of the Iles Casey Partnership, Farquhar Accountants Limited and Graeme Lee & Associates Limited, Chartered Accountant practices.

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Midgley Partners Limited

A boutique firm Midgley Partners are as particular as the clients and assignments they select. Continuely looking to secure clients who can demonstrate a desire to improve their understanding of their business, therefore grow their business and profits and improve their quality of life.

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BM Accounting Ltd

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Phone: 06 876 7159

Naylor Lawrence

Region: Manawatu/Wanganui

Phone: 06 357 0640

Wallace Diack Chartered Accountants Ltd

Region: Nelson/Marlborough

Phone: (03) 578 7389

Sudburys Limited

Sudburys look after business owners providing solutions in all areas related to accounting, finance and wealth management. They work alongside their clients, from supporting them with their daily accounting needs, to providing them with valued business advice.

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Phone: (09) 430 4888

G S McLauchlan & Co

GSM is a Dunedin based Business Advisory and Chartered Accountancy practice founded in 1957. 

GSM pride themselves on our specialist knowledge, our ability to keep fresh in today's ever changing environment

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McIntyre Dick & Partners Limited

McIntyre Dick & Partners Ltd is one of the top chartered accountancy and business advisory firms in Invercargill and with a diverse portfolio of clients throughout the south including Invercargill, Te Anau, Gore, Queenstown, Dunedin & throughout Otago.

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The Accountancy world is constantly changing and highly competitive. At Harris Taylor their challenge is to stay ahead of the competition by providing the best possible service, whilst ensuring that client satisfaction remains our primary motivation and ultimate goal.

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Strettons Directors lead an energetic team of skilled professionals. Their team is motivated, multi-talented and works hard to achieve maximum results for clients. Their strengths and specialities align with the backbone of New Zealand industry - forestry, farming, geothermal energy, tourism, property small to medium business and human resources.

They recognise that one size does not fit all and their business reflects this, they employ the best people with a range of talents to service their clients.

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Southey Sayer

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Gambitsis Crombie Limited

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Marshall & Heaphy Limited

Central to the culture of the team that has been developed over their history, is the belief that successful and sustainable businesses are the backbone for the West Coast community. Great businesses create jobs, keeping people and family together on the Coast, building a sustainable community.

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Phone: 03 768 7186