What will happen to your business if you are ready to move onto another venture or into retirement? Succession planning is not a quick or cheap process so it pays to plan ahead.
If you’ve worked for years to build up your business, handing over to someone else may be furthest from your mind. Few owners have formal exit plans — if any — because it’s too early to think about it, or there’s no time to create one or they don’t know where to start.
There are serious risks if you don’t plan who’ll succeed you. Small businesses without succession plans often fail when their owners retire, get sick or die.
If you are running a family business or in a partnership where selling the business on the open market is not a viable option a solid succession plan is essential if you want your business to carry on successfully after you leave it. The plan needs to identify which family members or partners will take over or offer another management option.
If you’ve decided to step back from your business, but you want to stay connected to it, there are several ways to do this:
Retain a share. You can keep a stake or shareholding in your business to give you an income in retirement or while you start another venture. Get advice from a lawyer and accountant if this will involve giving or selling shares in your business.
Retain a role. You may decide you can step back from the business but still offer valuable advice to your successor, especially if they lack your experience and knowledge. Decide what role to take, eg. director or consultant, and talk to your successor about how it will work.
It’s a good idea to get advice for every stage of succession planning. How much advice you need depends on:
where you are with your planning
your business structure — companies and partnerships may need more advice than sole trader businesses
the size of your business, for example, your turnover
how much your assets — including your intellectual property — are worth.
Succession planning isn’t an exact science, but there are steps you should take:
Talk to family/partners. It’s important to ask relevant family members about succession, even those who don’t work in the business. Everyone may have different ideas of what’s best for them and the business.
Set goals. Decide on what you want to happen to your business, what your role will be — if you want one — who should run it and when you want to leave, for example, when you turn 65 or the business is worth a particular dollar value.
Know your assets. Identify all your assets and liabilities. This helps to value your business so you can calculate shares or sale price.
Have a timeframe. Getting a sound plan in place can take a few years. The earlier you start, the easier it will be to leave when you want.
Get advice. You’ll need professional advice at various stages of your planning and exit. Think ahead and approach them well in advance.
Document your plan. Make sure key decisions are written down and accessible to family and advisors.
Review your plan. Do this regularly, for example, at least yearly, to account for changes to your business and circumstances.
Find more information and details on Business.govt.nz.
