As a small business owner, you’ve devoted a significant amount of time and energy into building your business. And, probably like most small business owners, you haven’t had much time to think of anything else. Sure, you may have entertained handing over the reins one day, but beyond a few fleeting thoughts of lounging on a white sandy beach sipping retirement margaritas, you‘ve been consumed with managing your business’ daily affairs. You are not alone. According to the Canadian Federation of Independent Business (CFIB), less than half of Canada’s small business owners have created a formal succession plan.
So, what exactly is a succession plan? A succession plan is all about transferring the ownership, management, and the interest of a business. Once you’ve decided to release the reins, it’s your “exit strategy” and it’s crucial for every business to implement one at any stage, from initial start-up to maturity. A formalized succession plan helps protect your investment, ensures financial security, and minimizes risks. It’s also your blueprint to navigate unexpected circumstances, giving you opportunity to maximize the sale or liquidation of your company.
If you’ve been putting it off, it’s time to buckle down and begin putting your succession plan together. It’s never too soon or too late to start planning. To help you get started, here are seven relatively straightforward steps to get you moving in the right direction.
1. Consider your exit strategy & your goals
Take your time, there is a lot to consider. How do you want to transition out of the business? Do you want to continue the business legacy and brand? Maybe you plan to transfer ownership to a family member or sell the business to an outside buyer. You might decide to close and liquidate all company assets, or you may want to continue being involved in the business to some extent. It all depends on your vision and goals. Remember to also consider your personal and financial goals once you have stepped away from the business. Knowing your overarching goals will help guide you through this process.
2. Identify potential successors & get them up to speed
Finding the right match to take over the business, whether a trusted employee, business partner, family member or an outside party takes time. Once you have identified the right candidate, you’ll need to bring them onboard and gain their buy-in (as not everyone you approach will want to be a successor). It can take months to train successors, get them up to speed and ready to take over the business.
3. Have a business valuation performed
Conducting a business valuation is essential to move forward with any transitioning plan because a valuation will determine the fair market value, investment value and liquidation value of your business. Once you know what your company is worth, you know how much to sell it for to make a profit. If you are seeking additional investors to fund company growth or save it from a financial disaster, it’s much easier when you have a business valuation completed.
4. Bring in your team of business advisors & experts
Succession planning is a complicated endeavor and shouldn’t be done in isolation. When you are ready to develop your plan, it’s time to bring in your team of experts to review your options, ensure all avenues are explored, and that you have access to appropriate legal, financial and tax information.
5. Formalize your plan and any draft agreements
Once you have all your details together, it’s time to document your succession plan and translate all that information into concrete and measurable action plans, with specific timelines. It should also define the roles, responsibilities and accountabilities of all individuals involved. Agreements need to be drafted that spell out the who, what, when and how of the succession plan. These agreements will need to be signed-off by successors and should form part of your formalized plan.
6. Execute your plan when the time is right
There are no hard and fast rules about when to begin executing your succession plan. Every business is different and every business owner has their own transitioning timeline. One of the more common triggers is retirement. Whatever the reason to initiate your plan, the strategies and action plans developed should help smooth the transition process when you are ready to step away from the business. Once the plan is enacted, monitor and evaluate its progress and adjust for unexpected events.
7. Review your succession plan regularly
It’s important to review your succession plan annually with your team of experts and designated successors to ensure it remains up to date. Over time, circumstances could change, designated successors may lose interest or leave the business to pursue other opportunities. Your own plans could change and you may decide to either delay or accelerate transition.
By creating a succession plan, you are exercising control over what happens to your business when you decide to step away, protecting its assets and its future. Both the CFIB and BDC (Business Development Canada) offer further information and guidance on developing a succession plan. If you don’t yet have a succession plan, don’t put it off any longer. The next question - how do you find professionals and ensure your plan is a success? To find the lawyer, financial advisor, accountant, or consultant that aligns with your plans, Vexxit is Canada’s top choice to find the match you need.