The reality of an aging workforce means “succession planning is becoming more and more important for businesses. With more business owners (Boomers) looking towards retirement, and potentially fewer entrepreneurs wanting to become business owners (Millenials) creating a strategy today for your tomorrow is worth considering.
A good succession plan will help the transfer of your business go smoothly, and allow you to maintain good relationships with employees and business partners. Succession planning also helps you:
- Protect the legacy of your business
- Maintain a service for your community
- Build value for your business
- Provide financial security for your family and your stakeholders
- Deal with unexpected events (illness, accident or death)
- Prepare for the future
Start planning early if you intend to retire or exit from your business as the process could take up to five years. Your business succession plan can help you make important decisions about ownership, maximizing your company’s value and tax strategies. A plan should touch on some of the following areas:
- Goals and objectives
- Develop a vision for the business.
- Determine your retirement or post business ownership goals.
- Decision making
- If appropriate, involve family members in the development of the plan.
- Have a conflict resolution mechanism — a pre-established plan to resolve any conflicts between family members, partners and/or employees.
- Select a successor.
- Identify the core skills and competencies that your successor will need.
- Plan for training of the new owner(s).
- Estate planning
- Prepare a financial plan and determine the tax implications of the transition of your business.
- Contingency planning
- Have a contingency plan that includes the financial resources required to ensure the survival of your business in case of illness, accidents and even death.
- Corporate structure and transfer methods
- Determine your options as a sole proprietor, partner or owner of a corporation.
- Decide whether you wish to transfer or sell the business to your successor.
- Business valuation
- Find out the fair market value of your business.
- Exit strategy
- Establish a timeline for easing your way out of the business.
- Implementation and follow up
- Review and update your plan regularly.
It is a good idea to contact key advisors such as accountants, bankers and lawyers when developing your succession plan. Good communication with your successor(s) is important as well, in order for them to understand their roles in the business and to allow them to collaborate with you throughout the transition process.
For more information on resources available to help you plan your business succession plan go to https://canadabusiness.ca/business-planning/succession-planning/