Encounter the Difference

NZ CA is an association of independent Chartered Accounting firms, proactively working together for the benefit of our clients.

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.

 

Related Articles

  • Auckland
  • Bay of Plenty
  • Canterbury
  • East Coast
  • Hawke's Bay
  • Manawatu/Wanganui
  • Nelson/Marlborough
  • Northland
  • Otago
  • Southland
  • Taranaki
  • Waikato
  • Wairarapa
  • Wellington
  • West Coast

McDonald Vague Limited

Our experience in business turnaround, restructuring and insolvency has helped many New Zealand companies through periods of growth and change, as well as difficult times.

We advise underperforming businesses how to protect their financial future and find stability through a range of turnaround services including independent accounting reviews, raising finance and divestment.

Region: Auckland

Phone: 0800 30 30 34

Young Read Woudberg

Trust YRW for highly professional accountancy support – as well as for expertise in business development, new business establishment and information technology.  We have a firm emphasis on regional business needs and are particularly close to local dynamics in the property, commercial and horticultural sectors. YRW are well resourced to provide experienced, informed, independent advice while we remain small enough to form long lasting personal relationships.

Region: Bay of Plenty

Phone: 07 578 0069

Brown Glassford & Co Ltd

Brown Glassford & Co Limited have a long history providing specialist farm accounting and business advice to the rural community. The combination of experience, expertise and quality staff makes us one of the leading providers of farm accounting services in the South Island. At Brown Glassford & Co Limited we also provide management and accounting advice to the commercial sector.

Region: Canterbury

Phone: (03) 365 0881

No firms in East Coast

Accountants Hawke's Bay Limited

Accountants Hawkes Bay is an Independent Chartered Accountancy firm operating in Hawke’ Bay providing quality business and financial advice. We are a progressive firm specializing in accounting, taxation, business growth and software solutions for small to medium sized businesses.

Region: Hawke's Bay

Phone: 06 843 4868

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.

Region: Northland

Phone: (09) 430 4888

Flannery Tait

Flannery Tait Chartered Accountants is based in Alexandra with a satellite office in Cromwell.  The firm offers a variety of accounting services to clients who are located mostly in the Central Otago area.

Our Directors and staff have a great deal of experience built up over the past 30+ years and take pride in providing clients with a high-quality service at a competitive price. We are also actively involved in the local community and support many not for profit and
educational organisations.

Region: Otago

Phone: 03 448 8060

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.

Region: Southland

Phone: 03 211 0801

Harris Taylor Limited

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.

Region: Taranaki

Phone: 06 278 5058

GFA Chartered Accountants

GFA Chartered Accountants Ltd was formed on 1 April 2018 by Merv Gyde and Lance Fielder, two experienced Chartered Accountants based in Te Awamutu.

The name is an acronym for Guidance, Friendship and Acumen and reflects Merv and Lance and their teams approach to working with our clients.

It is based on the philosophical concept of Friends first, business later and forms the basis of the relationship between advisor and client, that in turn then allows the advisor to better understand the client's position and work with them to achieve their goals.

Region: Waikato

Phone: 07 872 6444

Southey Sayer

Offering a full range of accounting and business development services, tailored to meet the needs of each individual client. The wide range of expertise and experience within the firm is shared amongst the partners and their teams for their clients benefit. Services and products offered are fully flexible there will be no expectation to conform to a certain product or pricing structure.

Region: Wairarapa

Phone: (06) 370 0811

Gambitsis Crombie Limited

Gambitsis Crombie can trace its history back to 1966. Over the years it has undergone several name changes and based itself at several locations around the Hutt Valley. With all the changes over the space of forty plus years Gambitsis Crombie has always retained the fundamental principles of honesty and integrity.

Region: Wellington

Phone: 04 939 1975

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.

Region: West Coast

Phone: 03 768 7186