There are some common myths around succession planning, says Baker Tilly Staples Rodway Wellington Business Advisory and Taxation Services partner Matt Bonner.

One is that it can typically be wrapped up in months. The Ministry of Business, Innovation and Employment recommends anything from two to five years, depending on the type of succession and all it entails. Another is assuming that your family and employees will share your feelings and expectations around succession, but your preferred outcomes may be different so there’s no time like now to start your planning and have key discussions. But what does that look like?

Settling on a plan

Firstly you’ll need to consider your goals, says Matt. Do you want your children to take over the business? Are you aiming for it to finance your retirement? Do you want a continuing business legacy? Your options include:   

• Transitioning to the next generation or other family members
• Transitioning to an existing manager or team member
• Hiring a new manager or employee who ultimately wants to buy the business
• Selling it and leaving after a specified period
• Selling your business and remaining as an employee
• Closing it and selling the assets

“Once that’s established, you should get feedback from relevant family and team members, your intended successor if you have someone in mind, and business advisors such as your accountant, banker and lawyer,” says Matt.    

It’s important to have direct and honest conversations, taking their thoughts and feelings into account. Things to consider include:

• Whether an intended successor genuinely wants to take over the business
• Whether they can afford to buy into it or would need your assistance
• If it’s part of their inheritance, and how you’ll ensure parity if they have siblings
• Your approach if someone wants to take over, but isn’t the right person for the job
• Whether your plan will be good for the business
• How it might affect the employee dynamic
• Your future needs (and those of your partner, if applicable) if you want to sell the business, taking into account rising living expenses and lifestyle intentions
• If you need a particular amount, what will help you achieve that – an extension to your intended sale date? Improvements to maximise the value of the business? Something else? 

When you’ve established the way forward

Document your plan and share it with the key people. This is where it’s helpful to ask your business advisor if you’ve taken all key things into account. That includes… 

Preparing your business 

If you intend to sell your business, you’ll need to make it an attractive proposition for buyers. That includes consideration of your organisational structure, a business valuation, documenting operational processes, tidying up your balance sheet, financial forecasting, tax planning, sale preparation and more. Also, don’t forget to update your will and insurance.    

Preparing your successor 

Consider whether they need additional experience and training, and whether you’re the right person to provide that. “For example, if you’re grooming an existing employee for ownership, they might be really good at their job, but need external training in staff management or business acumen,” says Matt. 

“You should also consider whether they are the right fit for your customers and employees. That ties into whether their values, communication and leadership style align with your business culture and practices.”   

It’s also important to understand that the new leader will have their own management style and way of operating. Matt says many business owners are accustomed to doing things a particular way and find it hard to let go, but it’s important to step back and relinquish control. 

If your succession plan won’t come into being for some time and the new owner-in-waiting is an employee or family member, you can potentially offer a small equity share to help with engagement and lock them in to the long-term plan. 

Ensuring continuity 

A key thing in succession planning is mitigating the effects so that the handover and aftermath go as smoothly as possible for your employees and clients or customers. “For example, think about introducing your customers to the new owner well before they take over, so they get to know that person and are comfortable dealing with them,” says Matt. 

A word to new owners 

Sometimes new owners want to change a lot of things. They go in with a lot of energy and that can be disruptive to customers and employees. A good idea, if changes might have far-reaching effects, is to have a bedding-in period to become familiar with the business and understand why things are done a particular way, and make sure any changes are well thought out and will be accepted. 

• If you’ve been putting off your succession plan or need assistance, we’re here to help. Contact your nearest Baker Tilly Staples Rodway team.