It might seem like there’s never a good time to plan for the future, but many of the hassles that demand your attention now are not so important in the long run. Take the time to ask yourself where you would like to see your business in one, two, or five years. As one person said, don’t let the urgent throw out the important. You may want to sell to others or see a family member take over. You may have no relative who is interested but have employees who would jump at the chance to own the business. Whatever the future holds for your business, it’s never too early to start making plans.
Creating a succession plan is a slow-burning process that encourages you to analyze all aspects of the business (and your life as the owner) and come up with the best option to ensure the continuance of your hard work – and the opportunity for you to enjoy the fruits of your many years of labour.
Here are seven things to ponder when planning your succession:
Keeping it in the family or Management buy-out?
It’s natural to want to pass your business onto the next generation, but this requires that they have the knowledge, skills, and experience to run the company and take it forward. Regular meetings of all involved will keep everyone informed and provide a safe space to discuss business concerns. You may want to consider using a facilitator since there are bound to be conflicts arising from overlapping family and business lives.
There are also tax implications to be considered when passing the business to your children, especially with regards to the Lifetime Capital Gains Exemption. You will want to talk with an accountant or tax professional before making any decisions.
A management buy-out is essentially the purchase of the business by part or all of the existing management. Since the financing can be trickier, the owner’s exit is often gradual, with the transition taking place over three to five years. It’s important to ensure that all members of the management team agree with the vision, and are all truly interested in owning a stake in the business.
The management team needs to be strong and credible with a well thought-out business plan and sufficient financial backing. Both the business owner and the management team should engage independent professional advisors to guide them through the negotiations.
Start planning today
The overriding theme is to begin the process as soon as possible if you haven’t already. If done properly, succession planning is not a one-time exercise, but an ongoing process that you regularly update and amend as circumstances change.
For more information please visit:
- The 5 Phases of a Successful Exit Strategy (webinar)
- The 6 Phases of Buying an Existing Business (webinar)
- Lifetime Capital Gains Exemption – is it for you?
- Canada Business Network has a lot of great information, including links to template plans.
Finally, never forget that CFIB is here to help you. You can always call our counsellors if you have further questions.
Check out our succession report for recommendations on how government can make succession planning easier. Happy planning!