Succession planning: stepping back

I’ve spent a lot of time thinking about succession planning, both as an adviser to my clients and as a business owner. New Zealand’s economy is underpinned by small and medium-sized businesses: 

  •  97%, over 473,000, of Kiwi businesses have fewer than 20 employees and 69% of Kiwi businesses, over 338,000, have zero employees.
  • 43% of self-employed people are over the age of 40, which includes over 40,000 people aged 60 to 65 and over 23,000 people aged over 65 – the biggest wave of Baby Boomers.

This means there are tens of thousands of New Zealand business owners who will need to think about succession planning, but there’s surprisingly little out there to help them. If you’re starting a business, you can access business mentoring, grants and other encouragement relatively cheaply or even for free. This is despite the fact that the failure rate for start-ups is high: some estimates put it has high as 80% over the first 18 months.

How does this compare to businesses where the owner/manager is trying to step aside? Surely if these companies manage to successfully move to new ownership, their success rate is likely to be much higher? Yet the amount of help available for those trying to find a way to step back from their business is minimal. It’s certainly far less exciting to buy or move into an existing business than to start a new one from scratch, but I would argue that the existing business is far more likely to succeed because it already has a track record of profitability.

It’s true that many of New Zealand’s smallest one-person businesses simply can’t be sold; they depend so heavily on the personality of the owner/manager and the specific service provided.

For those businesses with employees, however, there needs to be some kind of succession planning. Selling a business can take months, or years, and the right type of buyer can be hard to find. Once you have found a buyer, the transition period can be bumpy.

I think there’s a real gap in the market when it comes to succession planning in New Zealand, so I’m going to be aiming to provide some case studies and ideas about it in this blog over the next 12 months. I’ve had a substantial amount of experience over the past 30 years in getting businesses ‘sale ready’, finding buyers for businesses, and transferring ownership (including, I should add, to family members, which is an extremely tricky process and requires expert handling). If you know someone struggling with the challenge of stepping back from a business, pass on my name – let’s get this conversation started.

 By Geoff Hamilton, CA