Building a successful business can be a lifetime of work. But what happens when it’s time to move on? As the baby boomers start to retire, the ‘For Sale’ signs will be slapped on Kiwi companies worth $24 billion. And succession planning needs to be part of your overall business plan. Here’s how to avoid a fire sale—or a business meltdown—and how to extract maximum value from your endeavours
You may be at the starting point where your idea has become a real business. Or you may be further down the commercial evolutionary track and thinking seriously about what happens next. Regardless of your age, or stage, or the size of your business if you haven’t thought about the subject of succession planning there are a whole host of reasons that say you should now make this a priority.
Succession planning is simply this: transferring control and ownership of an enterprise to others, ideally with a ‘win/win’ outcome. Most importantly, the business should continue its business with minimal disruption.
Succession planning is a process, not an event. It should be regularly reviewed and modified if need be. The scale and scope come in all shapes and sizes—from the Harvard Business Review highlighting how to seduce a Fortune 500 ‘Master of the Universe’ replacement, through to a down-to-earth discussion about how to sell the corner dairy.
Whatever the context, the key is to ensure that succession planning is not a stand-alone activity but part of your overall business plan. With any commercial undertaking, the degree of success lies in the devilish detail. Left to your own devices,you could find the process daunting—especially when you face some of the bigger decisions that will affect you, your family, other shareholders and, of course, the business. To date, the trend has been for New Zealand business people not to invite the experts into the melee until the last minute—the old ‘she’ll be right’ syndrome combined with ‘nobody knows my business better than me’ belief.
There is also a tendency to broach succession issues only when someone dies, leaves or is fired. Rather than having the process as an integral part of a cohesive business plan, we wait for someone to step down or, even worse, be removed. Then and only then do we entertain thoughts of who or what should happen next?
The subject is often seen as one not to bring up in polite company as it smacks somehow of failure. “What do you mean I won’t be around forever? Damn whippersnapper even to suggest it!”
As bullet-proof as some key executives may feel, the laws of nature will eventually apply to even the curmudgeonliest. Their demise might also signal the end, or downgrading, of business fortunes.
In another time or place, the sense of urgency that now surrounds succession planning would be less intense. A key reason why succession is currently such a hot topic is the baby boomers phenomenon.
In the late 1960s, someone wrote that the baby boomers would “pass through society like a pig through a python”. Within the next two to five years we will be witnessing the first part of the ‘pig’ making the exit into retirement—millions of business owners worldwide entering their golden years with great expectations. Including the notion that they will sell their businesses, or an interest thereof, to fund the future. The market will soon be fat with companies putting up the ‘For Sale’ signs.
According to comparable Australian data, 50 percent of these business owners will rely on the proceeds of the sale of their ‘baby’ to assist in retirement. In New Zealand, that’s anticipated to be 300,000 enterprises on offer with one-third located in Auckland alone. That equates to $24 billion changing hands in the biggest wealth transfer scenario the SME market has seen.
Staggeringly, only 38 percent of these people have any semblance of planning in place to turn their businesses into bucks. Not surprisingly, 33 percent expect to have difficulty in selling.
Against this background, the billion-dollar question being asked is this: will there be enough buyers to go around? The short answer (and it is short): no, nyet and non.
To continue with the animal metaphor: rather than being the stunned possum in the headlights, there are some practical steps that can be taken to groom your business to the very best advantage.
Get professional help and get it now. Involve your lawyer, accountant—even banker—and other business advisers. If they don’t know what to do, find someone who does.
When you walk out that door, is that it? Or do you want to retain some presence—through money left in or by remaining a manager?
We’re told no-one is irreplaceable. But with you gone, what talents will be missing? Can any member of your team be trained or do you need to bring someone in?
If you could have the ideal post-business scenario, what would it be? There is no harm in dreaming.
Buyers want one thing: success. How does your business scrub up when seen through a buyer’s eyes? Buyers also come in all different shapes and sizes. They may be existing management, outsiders wanting to take over, or even a private equity group. Be critical when assessing what is for sale. What really makes your business unique, successful, and attractive? Can you prove it through written contracts, formal systems and transparent accounts? Do you have a clear vision of the way forward, particularly in terms of opportunities, growth scenarios and challenges? Are there obvious weaknesses—for example, you? How important are you to your business? Can it flourish without you?
What will it take to keep the company running and profitable? What will it take to grow? And, what will it take to change the company to adjust to the new regime?