Lack of preparedness in succession planning by baby boomers looms as one of the single biggest issues facing New Zealand businesses. We invited three experts to T3 to share their thoughts on the succession landscape.
T3 welcomed three special guests, our panel of experts, to the last session (October 26):
- Aaron Wallace, Hayes Knight
- John Kirkwood, Hesketh Henry
- Matt Allen, ASB Bank
As well as sharing their take on the current business landscape the trio also highlighted a number of areas that require decidedly more attention when preparing for succession.
The group also focused on three key questions:
- What is the timeline for your exit?
- Who do you think you will exit to? i.e. What is the profile of your ideal purchaser?
- How much would you want to sell for and what do you need to do to achieve that amount?
Some of the key messages that really stuck out:
- Speak to your lawyer first before offering key staff shares in the company, unless it is part of a structured management buy-out.
- Businesses with an increased focus on governance, formal processes and external input are outperforming the market.
- Good governance leads to a more secure and profitable trading platform, whilst building longer term financial sustainability (and creates a more attractive proposition for tomorrow’s owner).
- Relationships deteriorate over time. Therefore introducing a shareholder agreement at the beginning of the relationship is crucial.
- For those businesses that have managed to stay ahead of their competitors there is now a growing opportunity for bolt-ons.
- The majority of business owners looking to sell over value their business
- When purchasing a business, the buyer is placing a value on the future cash flows of that business; but the bank will place a value on the assets of the balance sheet assuming it is a forced sale situation. This can lead to a substantial difference between what a business is worth to a prospective buyer, and the value to a bank from a security point of view. That doesn’t always mean the bank won’t be prepared to provide funding, but it does suggest a business owner considering succession should be aware of any gap between sale price and security value, and be prepared to identify and target potential buyers accordingly.
- Finally, start preparing for succession early – “call it what you want it is just good business practice.”
For more information about T3 please contact us.