Selling not only answer to succession planning

Selling not only answer to succession planning

More than 50 per cent of small and medium-sized businesses in New Zealand are expected to be sold over the next five years, but owners need not panic about selling on a cluttered market, says leading accountancy firm Staples Rodway.

Staples Rodway Corporate Advisory Director Gareth Hoole says baby boomers eyeing up retirement often have selling at top of mind, despite the fact it may not be the right answer for them and there are many other business evolution solutions to consider.

“We continue to hear how the market will become overcrowded with the number of private businesses for sale, but the reality is that succession planning does not automatically mean the sale of a business, or even the retirement of the owner,” says Mr Hoole.

“To help make the succession planning task easier, Staples Rodway has produced a new Business Evolution Guide to step people through the process. It aims to build, retain and pass on wealth from generation to generation, leaving a lasting legacy.

“While some businesses will be sold, others may be transferred to the next generation or be subject to a management buy-out. Some may even find that bringing professional managers in to handle the day-to-day running will work best for them,” he says.

Although business owners need not panic about selling, they do need to start their succession planning now as it usually takes about three years for the plan to come to fruition.

“It’s likely to have taken years for people to build up the value of their business, so they should expect it to take some considerable time to work out what should happen with it next,” says Mr Hoole.

According to the ANZ Privately-Owned Business Barometer 2010, of those businesses with an annual turnover of between $2m and $150m, 34 per cent of owners are also the founders of the business, 61 per cent of owners are over 50 years old, and 23 per cent are over 60 years old.

Ross Verry, General Manager Specialist Business at ANZ, says succession planning is essential for the successful continuation of these businesses, and now is the perfect time to address it with the recession receding and business owners better able to focus on the future.

"Owners have understandably spent recent times focussing on the shorter term performance of their businesses, and business performance and profitability is certainly critical for long term sustainability. But our research shows that the level of formal succession planning by owners has remained very low over the four years of the ANZ Privately-Owned Business Barometer,” he says.

“Independent advice is a key component of long term planning - it is encouraging that owners are increasingly recognising the value of this advice, as it is now key that they understand where to access it and begin utilising it to help them with the most critical decisions they are likely to make in their lives."
Seeing a gap in the market led Staples Rodway’s Baker Tilly International associate, Pitcher Partners in Melbourne, to develop the Business Evolution Guide. Its success has led to funding from the Australian Research Council to partner with Swinburne University to undertake a three year research project into sound succession planning processes.

Business Evolution Guide architect Dr Richard Shrapnel is a business strategist who has a PhD in Strategy, a Master of Business in Competitiveness, and is a Chartered Accountant and Fellow of the Australian Institute of Management.
Gareth Hoole says that in New Zealand barriers to succession planning are similar to those in Australia. Many closely held and private businesses are family owned, and not everyone is on the same page with what they see happening with the business next.

“It’s not uncommon to talk to the principal and hear them say they would like to retire in five years, but their wife’s expectation is that they would retire in six months. Then talking to their children about whether they would like to be involved reveals that only two out of the three want to, and that is not for 10 years,” he says.

“Succession planning is a delicate matter of balancing complex business issues and complex family issues, and what we recommend is for everyone to get together and fill in the Business Evolution Guide. That will ensure everyone’s expectations are out on the table, so we can start to work through a solution that is going to work specifically for them.”

“If business owners don’t do this, they’re ignoring a ticking time bomb and risk not leaving the legacy they would like to, but rather a business that is weakened and cannot continue to thrive without them.”

ENDS

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