My business, my baby!

My business, my baby!

< Back to Articles | Topics: Trends

Contributors:

Mark Zirka, CEO, Strategy Up

“No one knows my business better than I do! I built this business from scratch, who are you to tell me what to do?” said a business owner when prompted about the need for external support.

Indeed, as entrepreneurs, we did great, we brought the business to this level. We deserve a rest, we deserve to retire and keep on watching how our business will grow without us.

But, are we ready for this crucial decision-making moment?

Succession planning can be your best friend should you want to see your business flourish once you have exited.

Steps to successful succession planning:

• Business risk prioritization ⇒
• High potential talent identification ⇒
• Succession planning impact ⇒
• Ongoing assessment

Some research shows that only
54 per cent of boards of directors were mentoring a specific successor and
39 per cent had no viable internal candidates who could immediately replace the CEO in case of emergency.

On average, half of all businesses have either no or poor succession planning practices. We’d better make sure that our business is not part of this statistic. Succession planning is about classifying business-critical roles, which if remained vacant for a long period, could impact the business’ performance.

According to the Business Development Bank of Canada, a good practice is to have an informal advisory board to support the decision makers.

Only six per cent of Canadian entrepreneurs have an advisory board for their business. 86 per cent of entrepreneurs who have an advisory board say it’s had a significant impact on their business.

The benefits of an advisory board:

• The advisory board has no legal
responsibility.

• Could fill expertise and contact gaps.

• Provides unbiased fresh perspectives
to your business.

• Very low cost.

Many families could be very hesitant to acknowledge the need for transition planning and of sharing the outcome of such planning with the right stakeholders. If the succession planning exercise is done properly, it will provide high chances for your business to remain sustainable well beyond the leadership transition.

Family business does not come without its own particular challenges. This definitely doesn’t make it easier for the entrepreneurs, however there are ways to mitigate and reduce the risks significantly.

Let’s talk about the elephant in the room:

• Financial returns:
What is the value of the company? Should we look at the balance sheet, or at the earning capitalization model?

• Family interest:
Retirement income is the objective on the horizon. How to align the interests of all stakeholders, from current business leaders, to the potential newcomers.

• Time for the next generation: Not all businesses succeed at passing the flame to the next generation. On average, only 35 per cent of family owned businesses succeed.

• Disputes within the family:
My interest is different than yours. It could arise from a simple dispute, a divorce, voting rights of non-executive members and even death.

• Inheritance and estate
complexity:
Think about the tax impact. A big weight on our shoulders! To avoid such complications, planning would become a crucial component of the business.

Steps for efficient succession planning:

1. Fix goals and objectives: A
strategic planning exercise is a must
for family-owned and small
businesses.

2. Corporate governance: Set a clear
decision-making process. Define
triggers and communication
processes.

3. Write a succession plan: The best
time to do it is when there is no
conflict yet.

4. Define a handover plan: Let it
be clear with timelines, action items,
financing options, etc.

5. Business and estate planning:
Get advice from a professional tax
advisor. Have a business advisor on
your side to help you build the
strategy going forward.

< Back to Articles | Topics: Trends

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