Achieving a smooth succession and seamless business continuity
This Article was posted on 04.02.11 in
Succession planning. Put simply, it’s transferring the ownership and control of an enterprise to a purchaser of your choice, with a ‘win/win’ result being the desired outcome. Building a successful business can be a lifetime of work and, when it’s time to move on, you naturally want to extract the maximum value attainable for your past endeavours.
Many businesses will pass to new owners by default, as a result of:
- Procrastination, intransigence, arrogance and ignorance
- Successor disillusionment
- Business failure
- Relationship breakdown
- Accident, illness or death
Some business owners believe that their family trust or company is their succession plan, when in reality, all that has occurred is a shift of decision making – from parents, to trustees or directors. Other people sadly believe that their last testament (will) is an appropriate vehicle for the succession of their business/assets.
The majority of New Zealand businesses are owned by families, and they prefer their children to be their successors, regardless of whether they have the appropriate skills, aptitude or attitude. Realistically, though, a better choice of successor could be an employee or other non-family member.
Too many business owners do not operate their business based on a ‘plan’, and cannot or will not recognise the correlation between planning and success. Some actually believe planning is a waste of time! In my experience, few kiwi business owners, when asked, are able to produce a coherent written business or succession plan.
Business owners who are keen to achieve business continuity need to both design and plan their succession and ultimate exit. Most important of this plan, though, should be that the business continues with minimal disruption.
Succession planning is a process, not a reactionary response to accidental events - a journey, not a destination
Regardless of your age or stage in life, or the size/nature of your business, if you haven’t given serious consideration to succession planning, there are a whole host of reasons why this should be a priority:
- An obvious successor may become frustrated or commit to an alternative future
- Early identification of a successor allows time for grooming and training in a structured and organised way
- You need a lead time to form a succession and exit advisory team and to prepare the business for succession and/or sale
- Your business is struggling due to your weariness, lack of vision, procrastination, etc
- Your staff are becoming frustrated and de-motivated, or are leaving
- There are signs that a fresh approach is needed for your business
- It takes time to achieve a smooth transition and there are many rewards for a carefully planned, well-timed exit/entry
It is a phenomenon of humanity that we procrastinate, and it is only when we are faced with adversity such as death, injury, illness, relationship breakdown or business collapse that we face realities. Unfortunately, some owners suffer from decision paralysis.
The succession process begins and continues with the business owner’s written set of goals, dreams, aspirations, strategies and values. As there are an inordinately high number of family owned businesses in New Zealand, it is imperative these owners express not only their business strategies but also their personal goals, as these are nearly always inextricably linked. There’s no one-off fix, either. This plan needs to be kept current, and be a living document.
If you do not know with crystal clarity what it is you want then you are hardly likely to get or achieve it
Maybe it’s time for you to visualise and plan for a life beyond your business – there’s no harm in dreaming! There are wonderful activities waiting for you outside your business, and the sooner you disentangle yourself the earlier you can begin your new journey. You never know, it might even be a new business venture.
It is important to have a business continuity team to guide owners through the transition. There is a dearth of succession planners, and many business owners rely on traditional professional providers (accountants and lawyers) to be the basis of the succession planning team. The early involvement of financiers is strongly recommended.
The succession plan must be based on a fluent/dynamic budget and cash flow plan. Rarely do successors have sufficient funds available, and therefore owners are often financiers to the successors. It is critical, however, that the business remains viable, sustainable and profitable during and after the succession process. Hopefully under the new regime it will grow!
There are a number of other issues that deserve consideration when preparing a succession plan, including:
- The quality of the successor’s and exiting owner’s wills
- The need for enduring powers of attorney
- Careful consideration of insurance and assurance covers
- The appropriateness of the business structure – companies, partnerships, trusts
- The importance of structured meetings
- Communication with employees, suppliers, advisors and non-successor siblings
- Acceptance that exiting owners will lose some or all control
- Reconfiguring the financial statements for the succession/exit process
- Arranging finances
- Risk management/protection plan (safety net)
Any business that starts and continues with the end in mind (succession or exit) will almost certainly enjoy significantly better cash flow and profits. Now is the time to commence your succession plan.
Written by Dean Purdue, Q&A Business Limited.
