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Tips on how to write a business succession plan

Find out how to start planning your exit strategy, so when the time comes, both you and your business will be ready.

5 minute read

When you’re deep in the day-to-day, it’s hard to imagine ever exiting your business. But the majority of business owners won’t be part of their business forever – which is why it’s important to plan ahead and think about your exit strategy early.

BNZ Commercial Partner Greta Hollies shares her advice on how to write an effective succession plan. So that when the day eventually rolls around, you can help make sure the transition is smooth sailing.

Start your succession plan by thinking about your life plan

The first thing to consider is what kind of exit you want. Do you want to stay involved in your company, pass it on to a family member, or sell it outright?

“Think about your life objectives versus your business goals, and how the two relate,” says Greta, “and think hard about your ideal timeline too.” Greta explains that a good succession plan can take two to three years to implement, so consider when you’re likely to want to exit your business. If it’s within the next five years, you might need to get the ball rolling sooner rather than later.

Keeping your business in the family

It’s common for a business owner to pass their business on to a family member. If that’s your goal, just remember to look at the situation as objectively as you can.

“You want to make sure your family member is the right person to take the business on,” says Greta. “Do they have all the management skills required, or will they need initial support until they’re comfortable enough to take the reins?” 

Consider how your exit strategy will affect your employees

Changes in ownership and management can be a stressful and uncertain time for your staff, especially if they’ve been with you for a while.

Greta recommends softening the transition by letting your key employees in on your plans early. “It’s a bit of a cliché, but your people really are your strongest asset,” she says. “The best thing you can do is be up-front and honest with them, so it doesn’t come as a shock.”

Take them on the journey with you, and they might be less likely to jump ship once the new owners take the helm. 

Identify any potential risks both for yourself and for the buyer

Greta explains that there’s generally less risk for the owner transitioning out of the business than for the new owner coming in. “Unless you’re transitioning to a family member,” she says, “which comes with its own set of challenges.” Regardless, it’s important to identify potential risks early, and outline a plan for how both you and the buyer might deal with them.

Consider possible risks such as:

• key staff members leaving
• the value of the company decreasing
• the value of the company increasing to the point that a family member can no longer afford to purchase it
• a family member not having the right skills to take the business on
• the timing of your exit not lining up with outside circumstances
• not getting the purchase price you were expecting. 

Do your homework on potential buyers

Just as a potential buyer will do their due diligence on your business, you need to do your homework on them too.

“When you’ve put your heart and soul into your business, you want to know it’s going to the right person,” says Greta. “Look into whether they have relevant experience and good transferrable skills, whether they want the same things for the business, and have the same goals.” 

Get the right advice from the right people

Greta recommends talking to trusted experts as early on as you can. “It’s a really good thing to discuss with your bank, your lawyer, accountant, and any other advisors you have,” she says. “Get their thoughts on what they think your exit should look like. Do they think you’re picking the right buyer, or the right exit strategy?”

Talking to an expert is also a great way to get a more accurate valuation of your business. You might have an idea of what you’d like your business to sell for, but an outside perspective will help make sure your purchase price expectations are realistic.

While thinking years into the future can feel daunting, the best way to overcome succession plan writer’s block is to just start putting pen to paper.

Once you begin hashing out the finer details, you might even find that the exit you thought you wanted isn’t the right route for you after all.

Start thinking about your succession plan today, and when the day comes to put it into action, you’ll be ready.

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This material is for general information purposes only and does not constitute, and is not intended as, personalised financial advice or as a replacement for legal advice. BNZ strongly recommends you seek advice specific to your personal financial or legal situation from a qualified adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.