Succession Planning in New Zealand

Succession
Planning in NZ

What’s your journey as a business owner? Will you run your business until retirement? Or will you sell and move on to a new venture? No matter what your end game looks like, it’s important to have a detailed succession plan in place so that your business continues to thrive after you step away. However, many business owners fail to prepare a succession plan.

According to research conducted by Brandon Hall Group, 39 per cent of respondents said their business would have no viable leadership candidates internally if the CEO exited. And, 71 per cent of respondents also said their leaders are not ready to lead their organisations into the future.

Because the old adage is true: Failing to plan, planning to fail, here’s how you can prepare a succession plan so you and your business can have a brighter, better future.

Need help with your plan? Contact us for expert advice

Succession planning in NZ

What is succession planning?

Succession planning is a talent management process that aims to develop employees into leaders who will take over key positions when leaders step down. Essentially, succession planning is a way to ensure your business can succeed and continue to create value if you or other key staff leave. It’s all about knowing that you’ve got strong leaders and smart processes in place. Once you’ve created and executed a solid plan, you’ll be able to retire without a worry, sell your business for more or pass your business on to family.

Is succession planning right for you?

Every organisation needs a succession plan, regardless of size or industry. Having a succession plan is particularly important for anyone who wants to:

Sell their business for a good price and set the buyer up for success.
Pass their business on to the family.
Retire in the near future.
Move on and do something different.

How early should you start succession planning?

It’s never too early to start succession planning. In fact, it’s usually best to have a plan in place when you start a business. Absolute worst-case scenario, you need to create a succession plan no less than five years out from when you plan to leave. You then need to start executing that plan at least three years before you leave.

Advisor Wisdoms

Rudimentary business principle: Don’t start your business unless you know how you want to get out.

Rod Way, Director Advisor at Advantage Business

Developing a succession plan

What you need to start your plan

First, build a profile for your position and outline the skills and behaviours needed to succeed. Then, look for potential successors who could fit the bill. Once chosen, they need to be carefully trained so that they’re ready to take on a leadership role when the time comes.

How to develop a succession plan

Your succession plan must lay out every detail of how you intend to exit the business. That includes the big stuff, like who your successor will be, down to the smaller essentials, like passing on key relationships with suppliers.

1

Define your type of plan

Are you selling your business to fund retirement? Or will you hand it down to a family member? Whatever your goal may be, you need to know what it is before you start planning and keep it in mind throughout the process.

2

Choose a team to manage the plan

To ensure your plan is executed effectively, create a team (usually comprising senior management staff) who are responsible for carrying out the agreed processes.

3

Identify any influences or external factors

Your succession plan should take into consideration external factors like changing economic conditions and technological advances in your field. How will your business cope with these changes?

4

Pick out talent

You should start identifying potential leadership talent at least three years in advance of leaving as well as making sure that they have the skills and attributes needed to succeed.

5

Build action plans for training and development

Your successor needs to be prepared to take on your role. This will also require buy-in from the rest of your leadership team as they will be a vital resource for your successor when you’re gone.

Leadership development

How do you identify good leaders?

An essential part of any succession plan is choosing and training an excellent leader. To do so, you must:

Learn what potential looks like

According to CEB research, high-potential leaders share three characteristics: engagement, aspiration and ability. Look for employees who really care about the business, want to succeed and have the skills to do so.

Ask others to help identify leaders

You might not interact with every person in your business regularly. Ask other leaders in your organisation to identify aspirants so that you don’t miss someone with great potential.

Advisor Wisdoms

Successful business leaders must know how to spot talent and nurture talent. Too often in NZ we trick ourselves into thinking that no one else can do the job as well as us. Wrong! The only reason no one else can do it is because we haven’t yet trained, developed and nurtured them.

Dominic Moran – Partner Advisor at Advantage Business

How do you develop a good leader?

Great leaders aren’t born - they’re made. That’s why coaching and developing your successor’s skills as a leader is such an essential part of your succession plan. Here’s how you can help grow leaders in your organisation:

Set development goals

The key to developing a new leader is to set achievable goals for them to reach regularly. This will not only motivate them, it’ll also give you a way to measure their progress and build their confidence.

Hold regular review meetings

Make sure your successor knows where they stand in your business. While annual performance reviews are important, you want to provide regular advice and constructive feedback about their performance.

Offer opportunities for growth

Lack of training and development is often a huge missed opportunity. By regularly offering your future leader training programs, you’re priming them to handle future challenges.

Lead by example and with respect

Great leaders practice what they preach. By demonstrating the characteristics of the type of leader you want the business to be led by, you set the example for aspiring leaders.

Contact our team for help developing your future leaders

Advisor Wisdoms

To develop good leaders it is important to remember that not just one-size-fits-all. We all have different personalities, behave differently and have different leadership styles. When we can understand how our colleagues communicate, relate to others, plan and achieve their goals, then we can recognise their strengths and unlock their potential.

Dominic Moran – Partner Advisor at Advantage Business

How do you retain a quality leader?

Retaining top talent is challenging - whether they’re head-hunted on LinkedIn or they subscribe to a job seeking website, opportunities frequently present themselves to your best employees. If you want to retain your top talent, it’s necessary to do the following:

Build strong relationships

It’s important to build a strong relationship with your successor as well as other leaders in your business. Not only will this make your staff happier and more productive, but it means they’ll be more likely to follow your succession plan once you’re gone.

Have a sound succession plan in place

Without a succession plan, you could lose your high-quality leaders before or after you leave. The direction and training provides your leaders with the confidence to do their jobs well.

Create channels for feedback and reviews

The most successful businesses have a culture of constructive feedback that is delivered often and to all members of staff. This enables each staff member to continually improve based on their colleagues' feedback. Build opportunities for peer and management feedback into your everyday operations, whether that’s in quarterly one-on-one meetings or every day in a more informal setting.

Family businesses

How does family business succession planning differ?

The most common type of family business is a husband and wife partnership, but they can be run by any member of the family. The owner is usually the manager and financial backer, and employees are often known personally. This adds to the pressure of close and complicated relationships in an environment that is already difficult to navigate, making decisions harder.

As a result, fewer than 15 per cent of family firms survive under family control after the third generation, according to research from the Harvard and Wharton Business Schools. That’s because these businesses need a detailed succession plan to help to solve the common problems that come when a business is passed on to family.

Advisor Wisdoms

Essentially succession planning is all about ensuring that the wishes of the shareholders are maintained. Business owners often want to leave a legacy for the family (assuming it is a family succession) often it’s about creating a pathway to allow both generations to capitalise on the business.

Rod Way, Director Advisor at Advantage Business

How can external resources help?

Establishing a board: Putting a board in place can help reduce complications due to family dynamics and keep the peace. A board also may help minimise tax obligations and is often seen as more credible to buyers.
Working with a business advisor: Hiring a business advisor is a fantastic way to help ensure that your business doesn’t fall into many of the traps that family businesses often do. If you can, find one that specialises in family business.

Advisor Wisdoms

Internationally and in particular in the US, it is considered to be ‘table stakes’. You won’t be considered seriously even as a start-up pitching to a Silicon Valley tech giant unless you have an exit plan. They would see your company as having something missing without one.

Murray Fulton, Director Advisor at Advantage Business

Succession Planning in NZ

What is succession planning?

Is succession planning right for you?

How early should you start succession planning?

Advisor Wisdoms

Developing a succession plan

What you need to start your plan

How to develop a succession plan

1

Define your type of plan

2

Choose a team to manage the plan

3

Identify any influences or external factors

4

Pick out talent

5

Build action plans for training and development

Leadership development

How do you identify good leaders?

Learn what potential looks like

Ask others to help identify leaders

Advisor Wisdoms

How do you develop a good leader?

Set development goals

Hold regular review meetings

Offer opportunities for growth

Lead by example and with respect

Advisor Wisdoms

How do you retain a quality leader?

Build strong relationships

Have a sound succession plan in place

Create channels for feedback and reviews

Family businesses

How does family business succession planning differ?

Advisor Wisdoms

How can external resources help?

Advisor Wisdoms

Succession
Planning in NZ