Plan what you want to do
You’ve built up your business and now you’re ready to move on, maybe into another venture or into retirement. You may want to pass management or ownership of the business to your children or a trusted business partner.
Or you might want to retain some ownership but take a back seat on day-to-day management. Whatever you choose, there’s a lot to consider.
If you’ve worked for years to build up your business, handing over to someone else may not be on your mind. Few owners have formal exit plans because:
- it’s too early to think about it
- there’s no time to create one
- they don’t know where to start.
Step back but stay connected
If you’ve decided to step back from your business but you want to stay connected to it, you have options.
Retain a share
You can keep a stake or shareholding in your business to give you an income in retirement or while you start another venture. Get advice from a lawyer and accountant if this will involve giving or selling shares in your business.
Retain a role
You may decide you can step back from the business but still offer valuable advice to your successor, especially if they lack your experience and knowledge. Decide what role to take, for example director or consultant, and talk to your successor about how it will work.
Succession planning
A succession plan puts in place steps to run your business successfully without you. Having a plan is essential if you’re thinking of selling or stepping back.
This isn’t a quick and easy process, especially when it involves family.
Family businesses
A solid succession plan is essential if you want your family business to carry on successfully after you leave it. The plan needs to identify which family members will take over or offer another management option.
This can be a tricky process, depending on your family relationships. Get your family involved as early as you can and seek professional advice.
There are serious risks if you don’t plan who’ll succeed you.
Make sure you have an exit plan, even if you think it’s too early to create one. Small businesses without succession plans often fail when their owners retire, get sick or die.
Steps for succession planning
- Step01
Talk to family
Ask relevant family members about succession, even those who don’t work in the business. Everyone may have different ideas of what’s best for them and the business.
- Step02
Set goals
Decide on what you want to happen to your business, what your role will be if you want one, who should run it and when you want to leave – for example, when you turn 65 or the business is worth $1 million.
- Step03
Know your assets
Identify all your assets and liabilities. This helps to value your business so you can calculate shares or sale price.
- Step04
Have a timeframe
Getting a sound plan in place can take a few years. The earlier you start, the easier it will be to leave when you want.
- Step05
Get advice
You’ll need professional advice at various stages of your planning and exit. Think ahead and approach them well in advance.
- Step06
Document your plan
Make sure key decisions are written down and accessible to family and advisors.
- Step07
Review your plan
Do this regularly – at least yearly – to account for changes to your business and circumstances.
Selling your business
You can think about selling your business at any stage, from before you launch to approaching retirement. Some people start a business with a plan to sell it within a set time – for example, five to seven years.
Selling a business is a specialist area so it’s worth getting an advisor to help you.
Getting ready to sell
Finances
Potential buyers will want a thorough look at your finances to make sure they’re buying a sound, profitable business. If your finances don’t reinforce your asking price, you may need to sell for less or reinvest to make the business more attractive.
To make sure your finances are in the best shape for sale:
- sell assets your business doesn’t use
- stop investing in long-term projects
- produce a realistic financial forecast – a business advisor can help you with this.
Business plan
Potential buyers will ask for your business plan. If you don’t have one, make one. It should show:
- your business works efficiently
- it has good management
- how you plan to grow it.
Assets
Make sure all machinery and other equipment is well maintained. Give your premises a good clean and fix any maintenance issues.
Risks
A new owner will want to hit the ground running. Make sure you:
- lock key suppliers and customers into contracts
- sort out impending problems, like paperwork for a compliance change
- get up to date with health and safety standards and other obligations you have as owner or employer.
Legal issues
Before you put the business up for sale, make sure you:
- resolve any legal disputes
- disclose any legal cases you might still have to the buyer
- protect your intellectual property
- own all assets on the balance sheet.
Information for buyers
Prepare an information memorandum with details about your business. This will outline what buyers need to know to make their decision. It should be big on facts and show how they could grow the business.
Think carefully about what to put in your information pack. Leave out confidential information that could be leaked – for example about your customers – and get professional help to write it.
Staffing issues
Address any staffing problems before you put the business up for sale. Buyers may be put off if there’s a risk of inheriting difficult employment relationships.
Finding out how much your business is worth
It may sound obvious, but your business is worth what someone will pay for it. Owners and shareholders often exaggerate their business’ worth.
An advisor can help you accurately value your business based on:
- its assets
- how much profit it makes
- how much it would cost the buyer to start the business from scratch.
Selling your business – tax implications?
New Zealand has no capital gains tax, so you won’t be taxed on profits you make selling a business. However, there are other taxes and obligations that may apply. Your options when selling can also differ depending on the business structure you have. Talk to a professional advisor for specialist help.
Sole traders
Selling your assets may result in GST to pay if buyer and seller are both registered for GST. Talk to an accountant about GST and income tax before you sell your assets.
Selling shares
If you hold all shares in your company, you may want to sell the business as a going concern. When selling shares, it’s your responsibility to update shareholder details with the Companies Office. You can also ask a director with company authority to do this on your behalf. Selling your shares could have tax implications. Talk to your accountant or tax advisor first.
Intellectual property
Your intellectual property (IP) can be a big part of the value of your business to a buyer. Make sure you have protected and registered any intellectual property your business owns.
Merging your business with a competitor
If you’re considering merging with another business, think about competition early in the process.
Competition creates benefits for New Zealanders, as businesses are incentivised to innovate and offer greater choice and value in their goods and services.
There are rules that restrict the acquisition of a business or shares that would be likely to substantially lessen competition in any market in New Zealand.
The Commerce Commission recommends that you seek legal advice if you’re considering merging with a competitor, potential competitor or business in your supply chain – such as a manufacturer merging with a wholesaler, or a wholesaler with a retailer.
If you think your merger might substantially lessen competition, you should get clearance from the Commerce Commission. Clearance is voluntary, but if you don’t get it you might encounter significant penalties or the reversal of the merger, if the Commission finds that the merger could harm competition.
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