Built into every business plan should be an end goal, says Geoff Hurst CA, director of Accounted4 in Cambridge, New Zealand.

“You might not be able to define a very strict timeframe,” he says. “But you want to ideally create a product that is going to be very saleable, to give you the flexibility to exit the business at the time of your choosing and to maximise your return when you do so.”

Of course, if you create a saleable business, it also means you have created an excellent business, one that others are attracted to.

“It means you’ve got the standard metrics performing and mapped out, such as profit, cash flow, and so on,” Hurst says. “But it also means there are systems in place so the business can run without you, and there are key people in the business apart from you – the person looking to exit or sell – who have the training and knowledge to keep the business running.”

Joanna Oakey, managing partner of Aspect Legal and author of Buy Grow Exit: The Ultimate Guide to Using Business as a Wealth-Creation Vehicle, agrees that internal systems are of vital importance in the successful selling, or handing over, of a business.

“For an external sale in particular, you need to keep a focus on value added,” Oakey says.

“That value isn’t just the revenue or the profit in the business. It’s the interaction of revenue and profit multiplied by the multiplier that applies to your business. The multiplier will increase with the performance of the systems and infrastructure within your business.”

When it comes to successful exit and succession planning in a family business, Oakey says there are four main focus points.

1. Clarity around goals

The number of family businesses that have a clearly defined exit plan is very small, Oakey believes, and research backs that up.

The Grant Thornton Family Business Survey 2023 reveals just 38% of family businesses are already implementing a plan, while 72% say succession is a key priority for their business in the next 24 months.

“Almost all of the businesses I deal with have succession as a key point in their mind, but very few have a formal plan in place,” Oakey says.

The first element to develop is a clear picture of what the owner wants the outcome to look like.

“It sounds trite, but this vision is especially important in a family business where you potentially have options that are more varied,” she says. “What is perfect to you? And assuming you want to build in a period of transition, when do you want that to start? What is your vision of where you’re going and who is involved in that vision?”

2. Consultation and communication

Once that vision is in place, there needs to be clear communication and consultation with all who are involved. There is a chance some of them might not be interested in a further level of involvement, and that’s OK, Oakey says.

“If family members don’t see themselves in the same picture, it may simply indicate that you need to move to a non-family option within the business, or to look outside the business,” she says.

3. Building saleability

“The third step is building the business, irrespective of whether the path is internal family succession or external exit,” Oakey says.

“You still need to follow the principles that any business should be following, which is to make the business a saleable asset. That has to be priority number one.

“Having a business as a saleable asset is the best way to run a business anyway, because of the organisation and infrastructure that it requires you to build to protect the business and make it less dependent on individuals.”

This is particularly important in an unstable and unpredictable business market, such as the one we find ourselves in today. Solid systems and infrastructure help businesses navigate changes of direction and offer options when things don’t go according to plan.

4. Legal/financial structures

A business has a number of levels of structure, from the formal nature of the company/partnership to the ownership, management and tax structures.

“The question of whether or not you need to restructure on certain levels is often a tax question,” Oakey says.

“On the ownership structure, absolutely there needs to be some changes if you’re looking for succession right now, or in the short term. And part of the evolution will also be the restructuring of the business to run in a more sale-ready way, rather than relying on the founder or owner.”

Legal structure includes ensuring the business is as protected as it can be against risk, Oakey says. The type of risk a business is likely to face during the sale process varies from company to company, so it always pays to visit a legal adviser to finetune the business’s protections.

The accountant’s role is priceless

Of course, it also pays for the owner of the family business to consult with their accountant well before the sale or handover.

“Talk to your accountant to develop an understanding of what things are going to look like on the tax side of things,” Hurst says.

“That can be in line with working out what is a reasonable value for the business. You must also work out what will happen tax-wise on the other side of the sale, and how things can best be structured for the best outcome once the sale has been completed.”

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