Who will take the reins? The succession crisis for New Zealand businesses

New research out reveals that three out of four New Zealand business owners are expecting to sell their businesses to fund their retirement. But almost half (47%) don’t have an exit plan in place, and almost a third (30%) don’t believe their business would survive without them.

If you’ve ever watched the hit TV Show ‘Succession’, you’ll be familiar with the trials and tribulations of the Roy Family, and the conglomerate they squabble over. While the drama of the show is a (fictional) world away in New York, the scene is set for over 200,000 mature New Zealand businesses faced with a looming succession drama of their own.

First, consider the typical life cycle of a business, and the optimal moment of succession for the owner. The ideal time to sell is when profits are up, the business is in good shape. Not unlike selling a home that has been maintained and developed, for perhaps, the best chunk of a lifetime. Nobody wants their property, or their business to be sold under adverse conditions.

For the mature tenure businesses (20+ years) who hung on through the global financial crisis, these owners and partners may have stayed in business longer to rebuild and recover – to get back in good shape.  If they did not move on before being hit again by the global pandemic, and then yet again in recent weather events, they may be back in a rebuilding cycle, again. My prediction is that a lot of owners are staying in the business, much longer than they imagined, culminating in a succession crisis.

What can businesses do to sidestep this crisis?

1. Look to the professional services sector. Professional services firms will be MVPs of this crisis. They are the experts to engage when it comes to exploring equity options, tax implications, legal essentials, and more. Here is a complete ecosystem of both learning and support; professional services firms are good at succession, from the various partnership models they use, to the extensive specialist knowledge on offer. The businesses surrounded by skilled advisors will win.
2. Consider all directions for exit. Could the business pass to the management team? A private sale? A public one? There may be other options that are not immediately obvious too. See step one for who to talk to about developing a list, and strategically assessing all options.
3. Connect with peers. There’s a full quota of businesses in the same boat, understanding how they are navigating their way toward exit may be useful. There’s also a case for connecting with industry peers whose exit lies further down the road, they could be a buyer. At BNZ, plans are afoot to bring people together in 2023 to facilitate this kind of networking, stay tuned.

In business, personal events like a health issue, or a divorce are among the most common reasons for changes to ownership and partnership structures. They’re unpleasant to think about, but succession planning is not unlike an insurance policy, getting an exit plan in place early takes a lot of the drama out of the situation, and sets businesses up for the best chance of a happy ending.

The end game is of course for both the leaders who are leaving, and those who are arriving, to flourish in their next chapter. And as the country continues to grapple with skilled labour shortages, skin in the game is likely to become more common, to both attract and retain talent. What’s crucial however, is that we look at the big picture beyond profit share as a performance reward scheme, for New Zealand overall to succeed we need our future leaders to be embedded in the fabric of the economy, now.

This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser. No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.