In today’s New Zealand business sphere, we are dealing more and more with businesses confronted by an aging “baby boomer” proprietorship. Some successfully address succession, while others are forced to “turn out the lights” on retirement of the principals.
Effective succession planning takes careful strategic planning, coupled with professional legal advice to make sure most, if not all, bases are covered. Here are 5 tips taken from successful transitions we have been involved with here at Gillespie Young Watson:
- Identifying Successors.
A balance is required between the ideal successors and availability. Businesses should manage recruitment and promotion with a view to succession. Do the prospects have the skills, personalities, ambition and resources to become successors? Find out what qualities matter most to you in a successor and identify the best prospects to suit your business.
- Outsourcing.
Fast track successors by identifying prospects in rival businesses or in other industries who could be transitioned. Decision-making, leadership, risk management, people skills, and stress-handling can be applied within any business environment. If they are proven leaders and are clear assets in their own companies, they can be groomed to take the reins in your business.
- Attrition.
Allow for prospects falling by the wayside. Health, other opportunities, failure to develop, and other life events can cause prospects to decline your offer. Keep an open mind and have as many options as possible.
- Retention.
Once you have prospective successors, don’t lose. Always make it harder to leave than to stay. Provide or highlight the positives of ownership, such as work satisfaction, work environment, remuneration, prospects if succeeding to goodwill of the business, opportunities for development, and status. Arrangements that cement engagement (for example, minority shareholding profit sharing) can also help close the deal.
- Fallback.
It’s essential to have a contingency plan – have a plan B. If all else fails, have your business positioned so that it is an attractive acquisition and readily saleable at an acceptable price.
Gillespie Young Watson – Succession Planning Lawyers in Wellington
Looking to the future, decisions may need to be made now if you want to shape what will happen to your business when you wish to retire – the sooner this future risk is addressed, the better. You may be required to remain in the business post disposition, and almost certainly will be during implementation of a succession plan.
There are a range of mechanisms available for ensuring a smooth transition both operationally and financially, including minority employment linked shareholding agreements and deferred purchase agreements. Here at Gillespie Young Watson, our Wellington commercial law experts have been involved with successful transitions to provide the proper advice tailored to your business needs.
If you would like to sit down and discuss your succession exit strategy options, contact one of our specialist commercial law partners, David Butler.
