An introduction to succession planning
A Prince Edward Island potato farmerOpens a new website in a new window didn't start talking about retirement until he was 80 years old and had been diagnosed with dementia. This is not unlike many small business owners who haven’t started a succession plan.
According to the Canadian Federation of Independent Business (CFIB)Opens a new website in a new window, only 1 in 10 business owners have a formal succession plan in place.
Taking the steps today to make a succession plan can help ensure your business keeps running smoothly.
An ownership change is one of the most important moments in your life as an entrepreneur. When the time comes, handing over the company with a careful exit strategy can help you keep the value of your business – and your legacy.
Why does planning matter?
A good plan lets you keep positive connections with employees and business partners, which may be especially important if those relationships are with family.
You should also make sure your business is solid and has good prospects to get the sale price you want.
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 stakeholders.
- Deal with unexpected events (illness, accident or death).
- Prepare for the future.
A leadership change can also be challenging 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. It’s also important to keep your business running smoothly.
When should you start?
How about today? Today’s a good day to start planning if you expect to leave your business within the next 5 years.
Even if your business is new, having a plan in place helps ensure you’re prepared for the unexpected.
According to experts, transitions can take up to 5 years to complete and, in the case of a family business, as many as 10 depending on the organization’s size or how complicated it is.
With family businesses, relationships and emotions can make things more complicated. This is because most people aren’t that comfortable talking about aging, death and their finances.
Who’s best to replace you – and when?
Whether you want to pass your business to a family member, an employee or an outsider, you’ll need to consider the skills and qualifications they’ll need to run the business, which can take years.
Once you’ve chosen your successor, a transition plan will address the training they need.
Who do you need to support you?
You don’t have to do it alone. Experts are available to help with succession planning. The use of professionals is important to the success of a small business, including its transfer to another owner.
They 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 working effectively.
Professionals that may be able to help with your succession planning include:
- Accountants and tax specialists
- Small business specialists
- Lawyers
- Bankers
- Advisors
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 transfer.
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.