Succession planning is a topic we evangelise about at Advantage Business. Our advisors strongly advocate for most forms of planning. Looking at the flip side however, what good are the best-laid plans when a pandemic comes along? It has run roughshod, right through many succession plans. Let’s take a deeper dive into how many business owners have been affected and what you can do now.

The need for succession plans

Let’s first look at why we create succession plans. There are several reasons but two main drivers.

Internal

  • The owner’s perception of the value of their business compared to the value that they want to achieve for the business.
  • The desired outcome – this is not always about money but business value is, in my experience, often front-of-mind.

Both points above are more complex when more than one owner is involved. Consider what stage each owner is at in their mind. They will seldom be the same.

External

  • Events and life changes can and often do influence the timing of succession planning and execution.
  • As discussed in my recent blog on the impact of COVID-19 on business, there are three concurrent impacts that are being felt by most, if not all, businesses in New Zealand.

The impacts of COVID-19 on succession

In COVID-19, we are battling a pandemic that no business owner has ever dealt with (the last pandemic was in 1918, way before our time). Today, global cases are 16.9 million* and the daily number of cases is accelerating. According to The Economist, the actual number of active cases is likely to be 12 to 13 times the official number. However, at this stage, less than 10% of the world’s population has been infected.

Succession plans will be impacted in one of two ways:

  • An extended time frame is required to achieve the target business value
  • A shorter timeframe is now desired or needed by the business owner to exit their business.

It is my observation that this pandemic exhibits five key traits. These have many impacts:

  • Uncertainty
  • Resilience and stress
  • Availability of talent
  • Impacts on export and import businesses
  • Innovation – current level and the need to accelerate innovation.

The evidence

I’ve gathered these observations working with my clients and the various businesses within my network (both direct and indirect). They tell me that the factors described above are very much in play. While these factors are not new, COVID-19 has brought them into sharper relief.

The old saying ‘never waste a good crisis’ is also alive and well. Here’s what I’m seeing:

  • Through either necessity or as a risk management strategy, owners are examining all opportunities, resources and goals (short term, medium-term and long term). They are ensuring everything is working as well as humanly possible within their business. Any complacency that may have been present is gone.
  • At the same time, successful business owners who have time, money and capital that is underutilised are actively looking for additional business opportunities. Suitable candidates may be stressed businesses that can be acquired for a bargain price, complementary businesses, or both.
  • Joint Ventures are also being increasingly used, as a try-before-you-buy period. They allow business partners to assess their true competence and fit before committing hard-won capital and intellectual property into another enterprise.

Which industries are most affected?

The impact is right across the business community, regardless of industry or business size. No business is immune to current New Zealand or global economic conditions.

  • While it is true that in New Zealand the tourism, hospitality and educational industries have been hardest hit to date, it is fair to say that all New Zealand businesses have been impacted by COVID-19, for better or worse. It is also fair to say that the business impact in New Zealand has been more negative than positive at this stage.
  • At the same time, genuine innovation opportunities are presenting to many businesses and being relentlessly pursued by business owners. I’d like to share with you a superb inspirational clip championing innovation. It shows how the Bugatti Chiron smashed the 300mph speed barrier.

How to rework your succession plans

There are some clear guiding principles you can apply to succession planning in the current economic and business climate:

1. Don’t panic

Although it may seem obvious, there is no point in panicking. As a mentor of mine once said: “there is never any point in panicking, but if you must panic, panic slowly.”

  • Assess where your business is damaged, what can be done to minimise the damage and build from there.
  • Take stock of the situation and do what has to be done. Take a moment to watch a great example of triumph over adversity ”It’s not possible – no it’s necessary” the docking scene from the movie Interstellar.
  • At the same time, if you are experiencing rapid growth in areas of your business due to market opportunities, don’t panic regarding your ability to fund that growth. In this case, call me. I have assisted many businesses over the years to get the growth funding they need, including during and since the COVID-19 lockdown.

2. Systematically review your current succession plans

  • Your current plan is an excellent base to work from. Consider what has changed, what is needed, and which elements are still valid?
  • What are the new opportunities that are either apparent or are emerging?
  • Make time to review your current plans and ensure that you involve all the key parties in this process. Especially if you have brought in new key players to the business since your plans were formulated.

 

Getting started

If you don’t have a succession plan for your business, there has never been a better time to get started:

Start early

New Zealand SME business owners tend, in my experience, to be somewhat reactive when it comes to succession planning.

The later succession planning is started, the lower the exit value tends to be. That is because:

  • There is often less time to formulate and execute an exit from the business. This tends to limit both the number of options available and can often provide an impression of haste, which tends to drive down the achievable exit price.
  • Without allowing sufficient planning time, the decision taken by a business owner can be rushed. That produces a less than ideal outcome.

Consider what you want to achieve, whether it’s possible, how and by when?

  • Take stock of the current market position that your business holds. Is this position improving or eroding?
  • Do you have the skills within your team, and the business capability and financial resources needed to exit your business for the value that you wish to? If so, by when and how?
  • Conduct a gap analysis of where you are now versus where you want to be. Establish a realistic timeframe to get there.

Be flexible and agile

A major portion of your business value, now and in the future, will be driven by your ability, and that of your team, to be mentally agile. You must respond to changes in your circumstances and act on data that is at times incomplete. Above all, you must retain perspective and maintain motivation; both for yourself and your team.

 

Next steps

This is part one of two blogs on this topic. Next time I’ll look at some things to avoid and share with you some tips and tricks on how to make succession planning straightforward. I’ll also share some examples of how business owners have successfully reworked their succession plans and the issues they faced in doing so.

In the meantime, reach out to me if you’re in Auckland. If you are outside of the Auckland area, make contact and I will discuss your needs and location to determine the Advantage Business Advisor who can best assist you. Succession planning is a process we are all experienced with. Nothing can beat familiarity in this space and most business owners only get one chance to do it right. Using a trusted advisor as a sounding board is often crucial to success.

 

By Murray Fulton | Director and Partner | Business Advisor

*Source for COVID-19 statistics – Worldometer: https://www.worldometers.info/coronavirus