Could business succession be on the horizon for your organisation this year?
For many New Zealand business owners, their enterprise is very important to them. The business has been nurtured from day one, given the opportunities to develop and become something that they are extremely proud of.
There comes a time when a business leader may step away from their creation. Although this decision isn’t easy, succession needs to be done smoothly to ensure the business can continue as normal.
For this effort to be successful and profitable, there are a number of important elements to keep in mind. This is where succession planning becomes important.
So, if you’re considering business succession, what are the key points that you should be aware of?
Discuss who would be the best fit: In family businesses, loyalty and commitment is everything. However, that doesn’t mean that a family member who is already involved in the operations is the best fit to take over.
According to the Ministry of Business, Innovation and Employment, it’s important to discuss with the entire family what they envision for the future and who might be in the best position to take over leadership.
And the reason why? For whatever reason, the most ideal candidate might be working elsewhere – developing their own management and leadership skills that can take your business into the future with confidence.
Identify the best time for the transition to proceed: Ideally, business succession planning takes place a number of years before it actually happens. This means it will be easier to work out when the best time to leave will be.
For example, it could be based on when you’re going to retire or perhaps a milestone for the company – reaching a net worth of $1 million or similar.
These goals and objectives set a path for business succession and mean it won’t be a surprise to the team when it occurs.
Understand how much the business is worth: Depending on the structure of your business, succession might mean holding onto shares or even selling it on.
As you’ll want a value that is accurate, but also reflects your hard work over the years, identify all assets and liabilities and get legal advice as early as possible.
Most business leaders will know the figures beyond the spreadsheets but having the right data in front of you can make the entire succession process simple and stress-free.
Pass on the right information (but not everything): Understand what information is critical for moving forward. As the business succession planning continues, you’ll want to start preparing the information that the next generation will need to be successful. Although they might have their own ideas about how they want to function (and can make their own mistakes), there’s always going to be critical data. This can include anything from market trends and business goals to information on the competition.
Create good business processes: As many business leaders want to leave the operation in the best position possible, it could be a good option to review internal processes such as remuneration processes and undertake salary benchmarking.
If the business is successful and employees are happy and engaged, this makes any transition much easier and the prospects for positive growth are good.
Having access to industry data will also be useful to incoming leaders as they ramp into the sector – helping them to make good decisions from the start.
Business succession planning can be a daunting topic to consider but done well, it can ease the process of handing over the reins.
John McGill is the chief executive officer at Strategic Pay.
