You’ve built a successful business with significant assets, knowledge, and skills, but how and when do you pass these on? Many business owners delay thinking about this until they’re ready to retire or sell, but succession planning is crucial at any stage, especially since illness or death can strike at any time. Planning for your business’s future ensures financial security for your family and leaves a legacy for future generations. The most important step is to start as early as possible – the best time to start was yesterday, but now is better than tomorrow. About 90% of New Zealand businesses lack a formal succession plan. Don’t be part of that statistic!

What is Succession Planning?

Succession planning is the process of transferring business assets, knowledge, and skills to the next generation – whether that’s family or someone outside your current business. It’s a transition rather than a transaction, involving emotions, especially with family. A well-planned transition mitigates tension and emotion. When making your plan, consider whether your children will continue running the business or if you’ll need to sell it. An inclusive plan should outline the process for transferring both financial and knowledge aspects of the business, ensuring fairness and mutual understanding.

Involving Family in Succession Planning

Informal family discussions years before succession help prepare everyone. Regular discussions allow all family members to express their needs, fears, and future visions. Be open, honest, and transparent. Discuss your needs, your children’s wishes, the business’s status, and your vision and values for the business. If you don’t intend to let your children inherit the business, be clear about it early on.

Fair isn’t always equal – ensure all family members understand the business structure and obligations for those taking over. Explain what’s necessary for the business to survive. Address conflicts and seek consensus to make the succession plan inclusive. Focus on business continuity rather than succession, making the conversation broader than just assets.

Setting Clear Expectations

Communicate your expectations to your family, especially what you need from the business to sustain your lifestyle post-retirement. The business must be capable of providing that lifestyle; otherwise, its overall viability must be reassessed.

Children should communicate their intentions regarding the business. Clear communication helps determine their needs, which may involve financial support or gifting for those not taking over. Sacrificing some capital and security might be necessary to help the next generation establish themselves.

Early discussions help build skills and capabilities in the next generation, identifying and addressing knowledge or skill gaps. Train the next generation to ensure a smooth transition.

No Evident Successor?

If no family member wants to take over, consider partnering with motivated young people passionate about your business. Teach them in anticipation of passing the business to them.

Getting Specialized Advice

Regular family discussions should be complemented by specialized advice. Involving an experienced succession planner early, along with your lawyer, accountant, and other advisors, clarifies your vision and strategy. Establish a governance structure with clear roles and responsibilities. Professional advisors, involved throughout the business’s life, understand its history and can help implement and review your succession plan regularly.

Preparing the Business

A profitable business is essential for succession. Optimize profit from the beginning, as transitioning an unprofitable business is challenging. Every business has a lifecycle, with periods of struggle or lower value. Good advisors and open family communication are invaluable. Understanding the business’s strategy and vision, beyond just accounts, provides a comprehensive overview.

Hard decisions may be necessary during the transition, where professional advisors can help, such as allowing the new generation to implement changes while acknowledging the outgoing generation’s challenges in letting go. Your business is often tied to your identity, and professional advice can help make objective decisions for the business’s best interests.

When is the Best Time to Retire?

You may love your business but recognize it’s time to transition to the next generation. Capitalize on their passion for growth. This doesn’t mean you stop contributing value; your lifetime of knowledge remains valuable.

Succession planning is essential for your business’s future. If you haven’t started, do so now while the choice is yours. It may be the best decision for your business’s continued success – your legacy.

How Core Legal Can Help

Core Legal can assist with all aspects of succession planning. Our experts provide the advice you need, helping you identify your current stage in the process and develop a relevant plan for your business. Contact us to see how we can help you ensure your business’s future.