Selling or transitioning out of a business that you've created or bought and built over many years can be a stomach-wrenching exercise. 

There’s a lot to think about, people to consider, a myriad of critical decisions to make, and actions to take to achieve the best succession or sale outcome. One of the many positives about being a business owner is that you don’t have to traverse this critical junction alone.

This report charts a road map for small and medium-sized (SME) business owners to help them prepare for and successfully transition out of their businesses – whether it be in full, or part, to family members or an external third party. Creating a business that survives its initial years and grows into a sustainable and thriving enterprise is not a given.

Therefore, it’s critical that business owners make the same time, financial and emotional commitment to the succession or sale of their business, as they’ve poured into starting and running it.

Reasons for Sale
There are a range of reasons why businesses change hands. Most often the circumstances are planned, such as the owner retiring and wanting to realise wealth tied up in the business, or they want to grow the
business’s competitive advantage, with the help of strategic acquirer, so they can step back from the day-to-day running. However, sometimes unforeseen circumstances force succession or sale, such as an owner’s ill health, surprise interest from a competitor or other buyer, as well as favourable or unfavourable market conditions.

Planning ahead is critical
Business succession can be complex and risky, particularly If it’s done too quickly, and without proper planning, adequate due diligence, and a clear strategy. It can also be disruptive for employees, suppliers and
customers. The official newsletter of NZ CA Limited Best practice would see business owners working on a
succession or sale strategy well before they intend to pass on or sell the business. This plan should include a range of possible options and be regularly revisited and refined every year as the business grows and
matures. It should also take into account market forces at play including changing business conditions so that it can be enacted quickly if circumstances demand it.

"77% of new business entrants survive their first year. Only 51% are still operating after three years."

This plan should align closely with your strategic business goals, these goals broadly fall into the following categories:

● Creating a disruptive business or technology that may change ownership quickly – this may have involved attracting start-up venture capital.
● Building and expanding a medium-term business – this may have involved attracting critical skillsets, injecting additional capital through debt finance, debt funding, investors or injecting your own personal
● Maintaining and sustaining a long-term business. Such as a family business – this may have involved several stages of workplace expansion, capital raising, purchases and restricting. 

The 3 P’s of a successful succession or exit strategy
Achieving the best succession or exit outcome relies on having a well-planned deliberate and timely succession or sales strategy. This means getting a fair price for your business, negotiating reasonable exit
terms and after-tax results to ensure you have the best retirement options, and a smooth handover to the new owners.


The 3 P's of a successful succession or exit strategy are:

PURPOSE – What do you want to achieve? Full sale or partial sell-down and to who – family, investors, shareholders, a competitor, or employees?
PREPARATION – Who would be interested in your business? How would you find them? What makes your business attractive to them and therefore maximises your business value?
PROCESS – Which exit option is the most appropriate to help you achieve your goals and deliver the best outcome?

Business decisions are never made in vacuum. External factors, such as the state of the economy, industry, market and regulatory environment in which your business operates, as well as global geopolitical events, can influence the value of your business, market or investor demand, and timing of sale.

Keeping an eye on the economic forecasts, particularly related to the cash rate and inflation, can help business owners and their advisors plot a succession or sale strategy that is timed to take advantage or strong economic conditions. On the buy side, buyers and investors will also use these forecasts to inform their decisions about capital availability and the price at which they will transact.

Contact us for more information and assistance.