Succession planning for your small business

Date: 30th October 2017

Stepping away from, or selling up your business, is a massive life event. You may be overwhelmed by emotion and, without proper succession planning, this may lead to poor decision making.

A recent Xero survey found that almost 10% of business owners are likely to retire in the next year and Statistics NZ numbers suggest that up to 25% may leave their business within 10 years. Many of these businesses do not have a succession plan or exit strategy in place.

exit sign

Let’s look at the potential risks of not having a succession plan and how to go about forming one.

Risks of not having a succession plan

“We’ve got a whole heap of baby boomers starting to come out of work life and looking to retire as the statistics say, and that’s kind of scary that 90,000 businesses in New Zealand are looking to get out of business shortly,” said Xero New Zealand manager, Craig Hudson.

What’s at stake if you don’t have a good plan in place?

  • You’re unlikely to get the best sale price for your business
  • Your standard of living in retirement is likely to suffer
  • The buyer may have a harder time making the business succeed

Plan now for the future

“Small businesses need to step up and start planning for long term now. Get your books in order; make sure you’re checking in with your local business advisor, accountant and starting talk about what is your potential exit strategy and what your business today look like value-wise.

“You need to be having these hard conversations now so that you can be looking to the future.”

-Craig Hudson, Xero New Zealand

Begin forming an exit plan

Preparing your business for a change of hands is complex and requires planning long before exiting. To begin the process you may like to start thinking about:

  • Who the business will go to – will you sell to a family member, an employee, or on the open market?
  • Will it be a clean break or a slow transition – would you like to stay involved for a period of time to assist the new owners? Perhaps you could act as an advisor or consultant, or remain as a shareholder or director? Do you need your capital released immediately or can this be transitioned too?
  • Realise that there will be strong emotions involved, especially if family members are involved. Find a balance between emotional and rational decision making.

Preparing a business for sale

Long before your business is to be sold make a move towards getting your business in shape. This may include:

  • Getting your accounts in order, making sure financials are up to date, formalising internal systems and automating processes.
  • Making your business more valuable through use of product differentiation, increasing market share, Improving customer loyalty, hiring and retaining experienced staff. Fix the weaknesses and consolidate the strengths.
  • Documenting systems and procedures. Research shows that businesses with systems and procedures in place are easier to sell and sell for a premium.
  • Getting your business ready to survive without you! Try reducing hours to test the waters.
  • Getting expert advice. Professionals such as accountants, lawyers and business mentors may be useful in preparing a business for sale and providing advice on a realistic sale price.

We can help

The first step in forming your succession plan can be as easy as having a conversation, either with friends, family or an advisor. We’re here to help, please get in touch.



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