If you’re a small business owner and you haven’t put a succession plan in place, you’re not alone. Bryan Maynard’s grandfather, a Prince Edward Island potato farmer, didn't start talking about retirement until he was 80 years old and had been diagnosed with dementia. He had no succession plan in place.
Maynard's story is part of a 2017 CBC article that reports 92 per cent of farmers haven’t planned for their retirement.i That statistic is in line with the findings of a 2011 Canadian Federation of Independent Business poll, which revealed that just 10 per cent of small business owners have a succession plan.ii
An ownership change is one of the most important moments in your life as an entrepreneur. When the time comes, handing over the reins with a careful exit strategy can help you maintain the value of your business – and your legacy.iii
Why does planning matter?
Succession planning helps ensure a smooth transition to new ownership. A good plan will allow you to maintain positive connections with employees and business partners, which may be especially important if those relationships are with family members.iv You must also make sure your business is solid and has enticing prospects to fetch a desirable sale price.v
Succession planning 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
Leadership transition can also be disruptive and stressful for employees, suppliers and customers. Make sure your strategy includes a communications plan for your business partners and team members to help keep everyone informed during the transition and business running smoothly.
When the times comes, handing over the reins with a careful exit strategy can help you maintain the value of your business – and your legacy.
When should you start?
Today’s a good day to start planning if you expect to leave your business within the next five years. Even if your business is newly established, having a plan in place helps ensure you’re prepared for the unexpected – that’s just smart business continuity planning. According to experts, transitions can take up to five years to complete and, in the case of a family business, as many as 10 depending on the organization’s size and complexity.vi
With family businesses, relationships and emotions involved can make succession planning especially complicated –most people aren’t that comfortable discussing topics such as aging, death and their financial affairs. According to Susan Ward, a Canadian business writer and experienced business owner, 70% don’t survive the transition from founder to second generation.vii “In most cases, the ‘killer’ is taxes or family discord – both issues that a good family business succession plan will cover.”viii
The Business Development Bank of Canada (BDC) offers resources to help you develop a plan, which address the list of considerations above, as well as finding your successor. Even if you’re not considering retirement, it’s a good idea to have a plan in place should something unexpected cause you to leave the business early.
Who’s best to replace you – and when?
Whether you want to pass your business to a family member, a member of your team or an external buyer you’ll need to consider the skills and qualifications they’ll need to acquire to run the business, which can take years. Once you’ve chosen your successor, a transition plan will address the training they need to be ready.
Who do you need to support you?
While succession planning can seem daunting, you don’t have to – and shouldn’t – do it alone. The use of professional services is essential to the success of a small business, including its transfer to another owner. Professionals can provide knowledge and expertise in areas where you may have little experience. They can also round out your management team to ensure your business is operating efficiently.
As an entrepreneur, there are four professionals you may wish to consult who can provide knowledge and expertise in areas where you may have little experience:
- Financial security advisor
What’s your exit plan?
Your choice of successor, the structure of your business and working with the professionals listed above will help you work through your business transfer. Determining how you transfer your business – to a family member or through a cash or financing sale, for example – will help you determine the timeline for exiting the business.ix And, with all the helpful resources available – many of them free – there’s no time like the present to plan for the future.
The next article in the series will address how an advisor can work with you to create a plan that works for everyone.
i "Aging farmers with no succession plans put future of Canadian family farms at risk" CBC. July 16, 2017.
ii "Perspectives on small business in Canada" Canadian Federation of Independent Businesses. July 2011.
iii "Business transition planning" Free ebook available from BDC.
iv "Succession planning" Innovation, Science and Economic Development Canada. Nov. 14, 2017.
vi "Plan your succession" Business Development Bank of Canada.
vii "Microsoft, Apple, Jay Leno...they all needed a succession plan and so do you" FORBES. Feb. 9, 2014.
viii "Tips for Successful Family Business Succession Planning." The balance. Sept. 28, 2016.
ix "How to Transfer Business Ownership: What You Need to Know" Value Penguin. 2018.