Business Succession Planning NZ (2025): Planning Beyond the Buy-Sell Agreement

A buy-sell agreement is one page of a much bigger plan. How NZ owners line up valuation, funding, continuity cover and their own retirement, for both a planned and a forced exit.

Most owners think of succession as a single document: the buy-sell agreement that says who buys whose shares, and for how much. That document matters, but on its own it is the floor plan, not the building. A proper succession plan covers four things at once — what the business is worth, how a sale or transfer gets funded, what keeps the business running if an owner exits suddenly, and where your own retirement income comes from afterwards. Leave any one of those out and the plan has a hole in it.

This guide walks through both kinds of exit an owner faces. The planned one, where you choose the timing and hand over on your terms. And the forced one, where death or serious illness makes the decision for you. New Zealand has a provisional 617,330 enterprises as at February 2025, and 74% of them have no paid employees ¹ — overwhelmingly owner-dependent businesses where the whole thing turns on one person staying healthy and present.

TL;DR: A buy-sell agreement is one page of a succession plan, not the plan. A complete plan lines up valuation, funding (often insurance), continuity cover and your own retirement income — for both a planned exit and a forced one. With 74% of NZ enterprises having no employees ¹, the business is the owner, so the plan has to work even if that owner stops suddenly.

What is business succession planning, and why start early?

Succession planning is deciding, in advance, how ownership and control of the business move on when you leave — and making sure the money is there to make it happen. It is not the same as writing a will, and it is not only about death. Most exits are planned: you retire, you sell, you hand the business to a family member or a key staff member. A smaller number are forced on the business by death or illness. A good plan is built to handle either.

Starting early matters because the things that make a business sellable take years to put in place. A buyer pays for transferable, documented, recurring profit — not for goodwill that walks out the door with the owner. Reducing the business's dependence on you, tidying the financials, building a second tier of management and proving the profit is repeatable are all multi-year jobs. Funding a future buyout with insurance is also far cheaper to arrange while you are younger and in good health than scrambling for cover at 60. Early planning turns "I hope it works out" into a sequence of steps with dates against them.

What are your succession options: sell, transfer, or wind down?

Most owners land on one of three routes. None is automatically better; the right one depends on whether the business can run without you, whether a willing buyer or successor exists, and what you need the exit to deliver financially.

The wind-down option is the one owners least like to confront, but for much of the 74% with no staff ¹ it is the realistic outcome — a business whose value is bound up in one person's time and relationships often cannot be sold at a sensible price. That is not a failure of planning; it is a reason to build retirement savings outside the business as well, which we come back to below.

How do you value the business for a succession plan?

You cannot fund a buyout, set a fair internal transfer price or plan your retirement without a grounded number. The figure in your head is usually not it. Common approaches include a multiple of normalised earnings (EBITDA or owner's profit, adjusted to remove one-off items and a market salary for your own work), asset-based valuations for asset-heavy businesses, and discounted cash flow for those with predictable future income.

Whatever the method, three things make a valuation usable in a succession plan. It has to be independent, so a buyer or co-owner will accept it. It has to be tied to transferable profit, not to your personal effort. And it has to be redone regularly — annually is sensible — because a business that grows from $1.2m to $2.4m needs its agreement and its funding updated to match, or a death or sale crystallises a price that is years out of date. Valuation is a job for an accountant or business valuer; we use the number to size the insurance and the retirement plan, not to set it.

How does insurance fund a planned or sudden succession?

A succession plan can be perfectly drafted and still fail at the one moment it is needed, because the buyer cannot find the money. This is where insurance does its work — it converts a promise to buy into cash on the day.

For a forced exit, life and total and permanent disablement (TPD) cover on each owner provides the lump sum the survivors need to buy out a deceased or disabled owner's shares from their estate. The tax treatment follows the policy's purpose. Under IRD's capital/revenue test, cover taken out for a capital purpose — such as funding a buy-sell agreement so surviving owners can buy a departing owner's shares — generally has non-deductible premiums and a tax-free payout ⁹. That is the opposite of revenue-purpose cover, which protects ongoing business income and is treated differently. Getting the purpose, ownership and documentation right is what makes the money arrive cleanly, so the structure is worth setting up with advice rather than guesswork.

Whether any claim is paid depends on the terms, conditions, exclusions, stand-down periods and underwriting of the specific policy, and on your disclosure — so the policy wording matters as much as the sum insured. For a planned exit, insurance plays a smaller role, but key person cover can still protect the business's value and lending while a handover is underway, and it gives a buyer confidence the business will survive the transition.

How does a buy-sell agreement fit the wider plan?

The buy-sell agreement is the legal spine. It obliges a departing owner (or their estate) to sell, and the remaining owners to buy, at an agreed price or valuation method, on defined trigger events — death, permanent disability, and sometimes retirement or a falling-out. Without it, a deceased owner's shares pass to their estate, which usually means a spouse or children who may have no interest in running the business and every interest in being paid out.

But the agreement only says what should happen. It does not, by itself, provide the money, keep the business trading through the disruption, or sort out your retirement income. That is the core point of this guide: the agreement needs the valuation to set the price, the insurance to fund the price, continuity planning to hold the business together, and a retirement plan to catch you on the other side. We cover the legal drafting alongside your lawyer; our part is making sure the funding actually matches the agreement. There is more detail in our piece on shareholder protection and buy-sell agreement funding.

What happens to the business if succession is forced by death or illness?

A forced exit hits a business in two places at once. There is the ownership question — who ends up holding the shares — and the operational one — who runs the business next week. A buy-sell agreement handles the first. The second is what catches owners out.

If the person who leaves was central to revenue, lending covenants, supplier relationships or key client accounts, the business can lose income and value fast, regardless of who owns the shares. Key person cover is designed for this: a lump sum that lets the business absorb lost profit, recruit and train a replacement, reassure the bank, and steady itself while it reorganises. The right sum depends on how concentrated the business is on that person — our guide on how much key person cover you need walks through the calculation.

The figure below shows how the two exit paths run on the same timeline, and which piece of the plan funds each milestone.

Figure: The succession plan on a timeline — planned vs forced exit (Smiths Financial framework)

The point of running both columns side by side is that the same four building blocks — valuation, funding, continuity cover and retirement savings — serve both exits. You are not planning twice; you are making one plan robust enough to handle whichever exit arrives first.

How does your own KiwiSaver and retirement fit the exit?

A succession plan is only finished when it answers the last question: what do you live on afterwards? Many owners assume the sale will fund retirement entirely. For owner-dependent businesses that may not sell well, or at all, that is a fragile assumption — which is why building retirement savings alongside the business matters. We cover that trade-off in full in selling your business as a retirement plan.

It helps to know the baseline the exit has to build on. NZ Super for a single person living alone is $1,076.84 per fortnight after tax (M code), about $538.42 a week ³. A couple who both qualify receive $828.34 each per week after tax, a combined $1,656.68 per fortnight ⁴. But Massey University's 2025 Retirement Expenditure Guidelines show a two-person metropolitan household spending $1,780.32 a week for a "Choices" (comfortable) lifestyle ⁵ — leaving roughly a $952 weekly gap above NZ Super that the business exit and your savings have to close. To fund that gap across about 25 years, Massey's guidelines indicate a metro "Choices" couple needs a lump sum a little over $1 million on top of NZ Super ⁶.

KiwiSaver is the simplest second engine to run alongside the business, but the settings changed in 2025. As at 22 October 2025 the maximum annual Government contribution was $260.72 — 50 cents per $1 you contribute, up to $1,042.86 a year — halved from $521.43 effective 1 July 2025 ⁷. And the minimum default contribution rate, still 3% employee + 3% employer at that date, rises to 3.5% each from 1 April 2026 (then 4% from 1 April 2028) ⁸, so owners who employ themselves through a company should budget for higher contributions in the year they exit. As an owner, you should also factor in the ACC earner levy on self-employed earnings — 1.60% (GST-inclusive) for 2025/26, charged up to $152,790 of liable income ¹⁰ — when planning income protection around an exit. Returns are not guaranteed; the value of investments can go down as well as up, and past performance is not a reliable indicator of future performance.

A succession-planning checklist for NZ owners

Six steps that turn a buy-sell agreement into a complete, funded plan.

01 — Get an independent valuation. Replace the number in your head with a defensible one from an accountant or business valuer, and diarise to redo it annually.

02 — Decide the route. Sell, transfer internally, or wind down — and be honest about which is realistic given how dependent the business is on you.

03 — Draft (or refresh) the buy-sell agreement. With your lawyer, set the trigger events and the valuation method, not a fixed dollar figure that goes stale.

04 — Fund it. Match life, TPD and key person cover to the current valuation, with the right ownership and capital-purpose structure so a payout lands cleanly and tax-free ⁹.

05 — Plan continuity. Identify the person whose absence would hurt most, document the systems only they hold, and size key person cover to the disruption.

06 — Build your own retirement income. Treat KiwiSaver and investments outside the business as the base, with the sale as upside rather than the entire plan.

Frequently asked questions

Is a buy-sell agreement enough on its own?

No. The agreement says who buys whose shares and at what price, but it does not provide the money, keep the business trading through the disruption, or fund your retirement. A complete plan adds an independent valuation, insurance funding, continuity cover and your own retirement savings. The agreement is the legal spine; the rest is what makes it work in practice.

How often should I revalue the business for succession?

Annually is sensible for an active business. Value moves with profit, sector conditions and interest rates, and a buy-sell agreement or insurance sum set years ago can leave a large shortfall — if a business grows from $1.2m to $2.4m, cover sized for the old figure funds only part of the buyout. Tying the agreement to a valuation method rather than a fixed number helps, but the number still needs refreshing.

Are the insurance premiums for a buy-sell agreement tax-deductible?

Generally not. Under IRD's capital/revenue test, cover taken out for a capital purpose — such as funding a share buyout — usually has non-deductible premiums and a tax-free payout, the opposite of revenue-purpose cover that protects ongoing income ⁹. The purpose, ownership and documentation drive the treatment, so this is worth structuring with professional advice. Smiths Financial does not provide tax advice — please confirm the treatment with your accountant.

What if my business can't be sold?

For many owner-operated businesses — the 74% with no staff ¹ — winding down rather than selling is the realistic outcome, because the value is bound up in the owner's own labour and relationships. That is exactly why building retirement savings outside the business matters: KiwiSaver and investments give you a retirement income that does not depend on finding a buyer.

How much retirement savings do I need alongside the business?

There is no single figure. As a reference point, Massey's 2025 guidelines suggest a metro couple wanting a "Choices" lifestyle needs a little over $1 million on top of NZ Super ⁶, to close a gap of roughly $952 a week above the couple's combined Super ⁴⁵. Your own number depends on your costs, your other assets and what the business realistically delivers. Personalised advice works through what fits your situation.

When should I start succession planning?

Earlier than feels necessary. Making a business sellable, reducing its dependence on you and arranging affordable cover while you are younger and healthy are all multi-year jobs. A useful posture is to have an independent valuation and funded agreement in place 5+ years before any intended exit, refreshed annually.

This article is general information only and is not personalised financial advice. It does not take into account your particular financial situation, goals or needs. Before acting, consider whether it's right for you and seek advice tailored to your circumstances. Smiths Financial is a trading name of Craig Smith Business Services Ltd (FSP712931), which holds a Class 2 financial advice provider licence issued by the Financial Markets Authority. Smiths Financial provides advice about personal risk insurance, health insurance, general insurance, KiwiSaver and managed funds, and is a member of the Financial Dispute Resolution Service (FDRS), a free and independent dispute resolution scheme. Smiths Financial does not provide legal, tax, accounting or business valuation advice — please consult an appropriately authorised professional. Written by Henry Smith, Financial Adviser; reviewed by Craig Smith, Principal Adviser. KiwiSaver figures are correct as at 22 October 2025; check current rules at ird.govt.nz, kiwisaver.govt.nz and sorted.org.nz. Last reviewed 22 October 2025.

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