Tim Livingstone explains why every business should have a succession plan in place and what business owners should consider when developing one.
Although studies show that businesses with succession plans experience higher growth and have a higher survival rate than those without, over half of New Zealand SMEs don’t have any succession plan in place. A succession or exit plan is a formal plan that prepares you and your business for the future. Many business owners subscribe to the myth that they don’t need a succession plan because they are not planning on exiting the business for a long time. Ironically, though, succession plans are invaluable for preparing a business for the unexpected: providing essential protection against possible future events.
Succession/exit plans are also important because they force business owners to consider their end goal and how they will get there – after all, everyone’s ideal future looks different, and getting there may involve any number of different strategies. Some business owners may want to transition into a strategic overseeing role, while others may want to exit the company completely.
Succession or exiting takes thorough planning, and for this reason we recommend beginning early – long before you are actually intending on exiting. Not only does starting early help to prepare the business for sale or transition, it provides more control over the timing and a greater chance of a successful outcome.
I have personally witnessed very different outcomes in businesses with a succession plan in place versus those without when the unexpected occurs, such as a sudden illness or death. The devastation caused by these sudden events is difficult enough without the added pressure of trying to transition a business with no succession strategies in place. It can and often does cause irrevocable damage.
Optimising the Business
Regardless of your end goal, your business should be primed for optimal value. This may involve improving profitability, brand development, expansion, diversification or retraction, operational improvements, technology investment, or staff development. Businesses may benefit from the services of an independent governance or succession management expert who can critically and objectively assess different facets of a business and implement improvement strategies.
Transitioning to Family Members
There are several options to consider when deciding who to transition a business to, including: family members, employees, a third party via commercial sale, or winding down the business. Transitioning to family members can add an additional degree of complication as family dynamics need to be taken into account. It should not be assumed that a family member will take over the family business – they must be keen and have the necessary skills and acumen to be able to add value. We recommend that both the business owners and any interested family members obtain independent third party advice of both a legal and financial nature. It may be worth considering using a family trust. Also, bear in mind that in reality a family succession plan can take years to implement.
Remember, succession is a journey, not an event. It can be difficult for business owners to let go of years of hard work and dedication, relinquishing their control and power to someone else. Mental preparation for succession can prove to be invaluable in achieving the best possible outcome.
UHY Haines Norton Director Tim Livingstone has helped many businesses and individuals to develop and implement succession and exit plans. If you would like to learn more Tim can be contacted on (09) 839-0298 or email email@example.com.