As New Zealand’s business landscape evolves alongside a wave of baby boomers who are approaching retirement, planning for the future has become critical for many business owners. The decision of how best to pass on the family business is more pressing than ever.
Read on as our legal experts summarise the two primary approaches to business succession – internal and external. Each has its own set of benefits and challenges, with the right choice depending on the goals, family dynamics, and financial situation of the business owner.
Ultimately, early planning and clear communication are key to a successful transition. Email our experts today to arrange an obligation-free, 30-minute consultation: succession@laneneave.co.nz
Internal succession
Internal succession involves transferring ownership and leadership to someone already within the business – typically a family member or a long-serving employee.
This approach is often favoured by business owners who want to maintain continuity and culture.
Passing the business down to family members allows the legacy of the business to continue through the family, and provides a sense of ongoing stability for employees and customers.
Ensuring that the next generation is both willing and able to take over can be challenging – meaning clear communication and early planning are essential.
As another internal option, a trusted employee could purchase the business and take over its management.
This allows the business owner to sell to someone they trust and who understands the business – provided they have the financial resources to enter into ownership.
Valuing a business during an internal succession process can be tricky though, and business owners could miss out on obtaining a premium sale price elsewhere.
External succession
External succession involves selling the business to an outside party, such as a competitor or a private equity firm.
Selling to a competitor or someone familiar with the industry can attract a higher purchase price for the seller, and bring significant advantages to the business through the buyer’s added know-how.
Selling to a private equity firm can also provide a lucrative exit strategy but can often come with a more comprehensive due diligence process and closer scrutiny of the business.
Finding the right external buyer can be challenging, plus new ways of doing business introduced by the buyer can change continuity and culture.
Whichever approach you take, the team at Lane Neave is ready to guide you through and make a plan that works for you and your business.
