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Plan ahead or risk falling prey to 'vulture-like' buyers, owners warned

Private business owners favour gradual sell downs, but who's buying?

 Private business owners looking to sell now prefer a gradual sell down to an outright sale but the pool of buyers out there is limited, according to a survey by Deloitte and Moyle Consulting. And failing to plan ahead puts them at risk of "vulture-like" bargain-hunters.

The global recession and restrictions on access to capital in the local market led 82 percent of owners to say that now is not a good time to sell.

Yet with the average age of business owners in New Zealand estimated at 58, Deloitte partner Bill Hale says creating a succession plan is vital.

“With more business owners heading towards retirement there simply isn’t a great surplus of buyers out there, and some of those that are interested are often looking at paying below market rates,” Hale said.

"Taking a ‘she’ll be right’ attitude in this market won’t cut it.”

Two-thirds of survey respondents had no formal plan in place to achieve a transition of ownership of their business.

"Business owners really need to invest in planning for a successful ownership transition which may involve management or family members assuming ownership otherwise they may become prey to some of these buyers adopting vulture-like tendencies.

Most owners identify successors from within their current network of contacts and usually identify people within the business, by either grooming management or employees (38 percent) or family members (22 percent).

Jarrod Moyle, managing director of Moyle Consulting, said the survey found a lack of clear remuneration policies could be a hindrance in any sale process because buyers were unclear as to how employees were rewarded or incentivised.

While most businesses aim to provide employees with above market remuneration, this is often achieved through informal discussions with competitors about market rates.

But just 2 percent of owners were prepared to pay market rates to their own family members and a fifth were paid at a level below the market.

“Time and energy on a well thought through remuneration plan could boost the motivation and loyalty of key employees, as they could well be the future owners of the business. Ultimately this could lead to a better exit outcome in terms of ease, price and cultural fit, which is what most business owners are after following years of hard work.”