Succession Planning

Your legacy, their future
Future Planning – Why it’s so important

“Getting out of your business or farm may be one of the most important decisions you ever make and must be a carefully managed process”.

Research tells us that in New Zealand, and globally, the percentage of successful intergenerational transfers of business and farming assets is very low; (25 to 30 percent to the second generation, and only 15 to 20 percent to the third generation).

With around 80 percent of the world’s businesses being family businesses, one can see that the matter of ‘succession’ should command a high level of importance to all families engaged in within them.

Right now, the transfer of wealth within families is happening between the ‘baby boomers’ (those born between 1946 and 1964) and the ‘Y Generation’ (those born between 1980 and 1994). It’s also a known fact that very few family business owners have a formal succession or exit plan. In fact, only about 10 percent of business owners and farmers do.

The next 10 years are going to be critically important in relation to this subject, since it’s estimated that up to 80 percent of current business owners in New Zealand will be looking to exit their businesses.

Beginning the process

For current owners of businesses and farms, I can’t stress enough the importance of beginning the process of your succession/exit sooner rather than later. Inherently the founding generation has a strong tendency to leave it too late to ‘pass over the reins’. This denies them the opportunity to achieve the best outcomes, both for themselves and the incoming generation. So I’d urge you start thinking and talking about your future plans now.

So where to start?

First, the best people to talk to are your family, of course. Open and transparent communication is often the greatest barrier to overcome, but the sooner it is, the greater the chance you’ll have of a successful succession/exit from your business.

Next you should talk to your professional advisors (such as your accountant, lawyer and your banker). The three biggest challenges to a successful succession/exit are:

  • to overcome the insular nature of the family business
  • managing family relationships and expectations
  • choosing a successor/heir (to the business founder/CEO).

Key considerations

No matter what stage of the process of succession/exit you’re at, you must at some stage establish, in written form, your future goals, your vision for your family’s future, your expectations, your strategies for achieving the above, your proposed legal structures, your position in relation to risk and how you’re going to manage that risk. This is known as ‘future proofing’ your family and business.

Facilitation of these key elements of your future planning are documents in the form of:

1. A written succession/exit plan which should include your goals, vision, expectations, succession/exit strategies and proposed legal structures to best accommodate your desired future plans

2. A ‘safety net’ of documents that will take care of your risk management and longer term wishes, including at least:

  • Your Wills – that accurately reflect your wishes. It’s astounding how many people who don’t have a current Will
  • Your enduring Powers of Attorney – in case you become incapable of making a decision, for example due to an accident or a stroke
  • Your Memorandum of Wishes – a directive to your Will’s Executors or your Trust’s Trustees as to what you’d like to happen after your passing
  • Your Guide to Living Life – a file that contains information as to where your essential personal documents can be found
  • Life assurance cover and key person insurance cover – ensuring the entities you wish to own the policies do own them
  • Your personal agreements such as any deeds of family arrangements, matrimonial property agreement, partnership agreement or shareholders agreement.

3. Your annual financial statements for the business.

For those of you who’ve completed your succession/exit it’s more a matter of managing your wealth or the surplus funds you’ve emerged with after the sale of your business, and ensuring your wishes for your family are achieved beyond your earthly life. For you, the legal structures and components your ‘safety net’ will be of critical importance.

If you’re considering a business or farm succession/exit, then try and see a way of transferring at least the management of your business over to the incoming generation by the time they reach 35 years of age. This is believed to be to a critical age. Why? Because at 35, the incoming generation has at least 10 years of high level energy to give to the business/farm.

Begin now!

It’s not going to be easy. Human nature tells us people avoid conversations about mortality and change, and this process involves both. But remember that in the end “the greatest legacy a person can leave their family is the fruits of their life’s work”.2

About Barry

Barry Rosenberg is a Director at Moore Stephens Markhams, Accountants and Advisors in the Hawkes Bay. Barry is an expert on why and how you need to plan for the inevitable departure from your business and works with clients on exit strategies on this topic. Barry has an MBA and over 25 years experience around succession planning.

1. Purdue, 2010
2. International Centre for Families in Business

Contact Barry for succession advice for your business.



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