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Smoothing the Succession of Your Business

Smoothing the Succession of Your Business

Tracy Hickman
Mergers and Acquisitions, Specialist Services
Director, Staples Rodway Auckland

Tracy Hickman explores areas to think about when planning for the future transition of your business.

We regularly hear from business owners that their exit strategy will be to list the company on a share market via an initial public offering (IPO). However, a successful IPO will be one where the company has huge potential for growth and an executive team who are able to implement that growth strategy. If the founders of the business are a vital part of the executive team, an IPO is likely to mean more work, rather than an exit.

Preparation for transition

So what are the other options to consider for transitioning or exiting your business?

When selling a property, most owners will spend time tidying up and doing repairs. Similarly when selling a car, a valet never goes amiss. It’s the same when exiting a business, whether passing on to family, becoming a passive investor or selling up. Spending time preparing the business will ensure a smoother transition and will clarify exactly which options are available. For example, if it becomes clear that the next generation are not interested in taking over the business, awareness of that fact will enable owners to prepare for a transition to management or for a sale process.

Just as home buyers may place value on quality carpets and fittings, your business is likely to increase in value if you thoroughly address any potential issues. Think about which aspects of a business you would perform due diligence on if you were buying it, and look at those same areas in your own business to see if they would stack up (vendor due diligence).

Preparations include ensuring the financial statements are ‘clean’ and straightforward to understand. That is, make sure any non-business expenditure is excluded and any abnormal items can be explained. Untying personal assets from the business, such as cars, boats and property, makes it easier for those analysing your business to understand where the value lies.

It’s also a good time to review important contracts, whether lease documents, employment contracts or key customer and supplier contracts. Consider the needs of those who will be running the business going forward. In particular, if you are looking to sell, it may be convenient for potential purchasers not to be locked into a premises lease, or to have flexibility with customers and suppliers, so a short-term or easily exited contract may be a positive factor.

Grooming Successors

If your exit strategy includes moving to a passive investment, it will take time to groom management or the next generation to run the business. Setting up an advisory board, if you don’t have a board structure already, will help both in terms of mentoring those taking over and providing you with on-going oversight at a governance level.

Introducing managers to clients, suppliers and other key stakeholders (such as your lawyer, accountant and banking relationship advisor) takes time. It’s worth starting this process well in advance to allow for relationships and trust to develop, to maximise the chances of success in creating a stand-alone business that can continue to flourish without your day-to-day involvement.

Preparing your business for transition is important to ensure that the business is in the best possible state for those taking over to continue to grow, ensuring longevity and long term sustainability. It’s hard for former owners to see their business fail under new management due to avoidable issues, such as ill-informed decision making. Sadly, there are many examples of founders stepping back in to rescue a business, particularly from a poorly prepared next generation.

If your plan is to sell the business, it’s worthwhile thinking about who the potential purchasers could be. You may wish to reflect on scenarios to realise the value that you have built over the years. For example, consider whether your business could represent a strategic purchase, enabling one of your customers or suppliers to expand vertically. Or would one of your competitors be interested in purchasing your business in order to grow, or to gain access to assets such as prime locations or your intellectual property?

You may also wish to seek advice on the value of your business. A business valuation specialist can assist by advising on the indicative value of the shares or assets of your business. Business brokers may be able to share information in relation to other similar businesses that have been recently sold.

During the transition, it’s important to keep operating the business as usual, avoiding being distracted by the handover or sale process. Bear in mind that, especially for a business sale, the timeline may take much longer than expected. Continuing to invest in and identify growth opportunities will preserve value and ensure that the new management or owners are best placed for success.


What’s next after the transition process is complete? You’ll need to reflect on your options. Perhaps you are keen to establish a new venture or focus on other interests. The concept of ‘retirement’ appears to be less appealing to baby boomers than previous generations. Instead, we are seeing business owners who are ready to slow down, reducing hours, working from home (or beach) and moving towards more of a governance or strategic role. They maintain a level of involvement in their own business, or exit and take on board roles to help other businesses.

Your overall wealth will also be an important factor in determining which options are available to you, whether you can afford to take a step back or need to find other sources of income. If you don’t already use a financial adviser, it’s helpful to start building a relationship with one. By the time you are ready to invest significant sums in a portfolio, you will be able to call on a trusted adviser for help.

In summary, consider the options for transitioning your business and start preparing well in advance to ensure a smooth process, maintaining maximum value and positioning the business for future success under new management or with new owners.

For further advice on planning for the transition of your business, business valuations and vendor due diligence, feel free to email Tracy Hickman at or call her on 09 373 1133.

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