Change in business ownership at some point, is inevitable for most. A first step to progressing this direction is accepting the need for it, then building a plan to support the change.
A recent Rabobank report highlights more than half of New Zealand’s farm and orchard owners will reach the age of 65 in the next decade. Based on current land values this involves an estimated $150 billion of assets to be transferred to new ownership. Some owners will have planned for an orderly transition but inevitably some will have put this in the ‘too hard’ basket.
A business life cycle begins with a new business gathering momentum and maturing into the wealth-gathering stage. However, without renewal of some form, the business is likely to decline. At the beginning of an ownership cycle, there is often a willingness to take higher risk to accumulate wealth. After experiencing some inevitable knocks and surviving the down times, wealth is accumulated and there is less willingness, or need, to take risks.
When a business begins to run out of energy, it may be time to combine the drive of the youth with the experience of the old guard. This can be a difficult stage for the owner, loosening hold on the reins, and conversely, newcomers can feel frustrated by the existing owner seeing risk in their ideas. An ideal scenario would see energy and innovation utilised from the potential new owner, combined with acceptance of the expertise, advice and capital of the current owner. Within this dynamic, it is also vital to ensure the new ownership has the necessary skill level to take on the extra responsibility. This new ownership can take many forms and involves family in many cases.
When strategising for change, it is essential to plan for running a profitable business that others want to be a part of. To attract family members to stay on, or to attract others with skills and capital into a business, there needs to be a reward in the form of wages, capital growth and career advancement.
Succession is all about the people involved. There needs to be serious and open discussions to identify individual goals and ensure all parties are headed in the same direction. This can often be challenging and sometimes requires a skilled facilitator to assist. Involving professionals with the necessary advice on legal, taxation, finance and structure will ensure a good foundation is built. Risks need to be identified and covered with affordable solutions. This is where having the backing of a good team can help navigate through the maze.
To summarise:
Build a profitable business that has value and will attract others to be a part of it.
Get discussions going early to identify who the successors will be and develop those common goals.
Involve others with the skills necessary to build a solid foundation for the new version of your business, identify risks that could disrupt progress and outline manageable solutions for these.
Gearing up to transfer the ownership of your business and unsure where to start? Reach out to us at MCI for more information and guidance.