The number one priority for small businesses getting ready to sell should be replacing (at least partially) the management time, skills and relationships of the owner-manager with non-owner employee management. This will reap significant benefits when trying to sell the business.
Succession planning is the process of developing a formal exit strategy for business owners looking to remove themselves from the business. Developing a succession plan can take up to a year or more, with the implementation and orderly transition of the business taking as long as three to five years. This time horizon makes it tempting for business owners to put succession planning on hold and deal with day-to-day business matters first, but effective succession planning should start sooner than later.
A succession plan determines how a business will be transferred and outlines the steps necessary to prepare for the transition. The succession should be tailored to the business owner, as every business and personal planning situation is different. A well-thought-out succession plan will help ensure business continuity and maintain the confidence of customers, lenders, employees and suppliers of the business. It may include implementing an estate freeze, creating a holding company, writing a shareholders agreement and purchasing life insurance products.
A succession plan must also consider the business owner’s financial goals, legal requirements and set a desired date for the exit from the business. This date will help to guide and schedule the steps in the succession process. Some of the steps of the succession plan include:
- Updating (or establishing) a business plan.
- Researching and considering the list of potential successors.
- Transferring the role(s) and responsibilities of the owner.
- Determining the value of the business.
- Determining the tax implications and how to structure the succession plan in a tax efficient manner.
Independent professionals bring objectivity, specialized skills and experience and can help to expedite the planning process while the management team remains focused on the important day-to-day business issues. And remember, succession planning is a process, not an event.
Craig Maloney, MBA, CPA, CA, CBV, is a Partner with MNP’s Corporate Finance, Valuations and Litigation Support groups. He can be reached at 902.493.5430 or Craig.Maloney@mnp.ca
< Back to Articles | Topics: Special Feature