BNZ offers tips to small and medium-sized enterprises: How to prepare for succession or sale.
To thrive in a complex and evolving economic environment, New Zealand businesses need to keep up with change, secure access to knowledge, skills and capital, and in many cases, actively seek opportunities.
This will help to establish a business as an industry leader and put it at the top of the list for those looking to buy into a business, or buy one outright.
BNZ’s Head of Commercial, Graeme Geurts, says companies that identify opportunities, seek guidance and have a plan will be the best positioned for future opportunities, including sale.
Succession planning
Effective succession planning at operational, senior leadership, and governance board levels ensures a business retains valuable knowledge and remains resilient.
Investing in people development in the years leading up to a transition is well worth the investment. At times, development in capabilities to lead and run a business without the founder or long-term owner in it is overlooked, especially in family businesses.
Having leadership that is growth minded and seeks out different perspectives can drive the company forward as an industry leader.
Exit planning
Succession planning is also key for when an owner is ready to partly or fully exit the business, particularly as potential investors or buyers want to see a future for the company beyond the current key people.
And whatever the reason for an exit, there are some other key steps to follow for success.
The first is to decide whether the aim is succession or exit and strategically assess all options. Could the business pass to the management team, a family member, or is a private or public sale the right choice?
The most common models used for succession are:
· Family transition
· Management buyout
· Employee share option plan
For exit they are:
· Third-party sale, including mergers
· Private Equity
· IPO – Initial public offering
· Orderly liquidation/sell down
“It’s common to see management or employees buying into a business, which is a great way to retain key people and can form part of a holistic succession plan, allowing others to exit from a business,” says Geurts.
“Today, we’re also seeing a lot of interest from the private equity sector, locally and internationally, which is providing solid sale options for good businesses.”
Get the business sale ready
Include a business plan, governance plan, a valuation and an assessment of whether further value can be created before selling. Build in time to execute any changes.
“For the best outcome, ideal planning and preparation can take three to five years,” says Geurts.
Navigating the sale process
Thesale process can take six months, or longer, depending on how quickly you find the right buyer, and Geurts says a great outcome will have involved “discussion between the shareholders on what they want from the transaction”.
He adds: “If there is one owner, this is easier but when multiple owners or family owners are involved, this can take more time as shareholders can be at different ages and stages.”
Get external advice
Businesses surrounded by skilled advisers will generally get a better outcome. This can take the form of informal advice from industry peers who have been through the process before or are navigating towards an exit, or professional advice from firms that specialise in helping businesses prepare for a full or partial sale. Professional advice should always be sought when it comes to exploring equity options, tax implications, and legal essentials.
Insight into market trends is also vital, and if there isn’t this expertise on the board, consider adding someone with these insights.
You’ve sold the business – what’s next?
As part of exit planning, leaders should look at their personal goals. The future may involve starting another business, distributing wealth to family or philanthropic causes or funding retirement. Whatever the goals are, make a solid plan to meet them, and get the right advice.
This content is sponsored by BNZ.
This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser. No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.
