In 2011 the Canadian Federation of Independent Businesses conducted a poll that revealed that only 10% of small business owners had a succession plan. As a small business owner you need to plan for your company's future change of ownership. A careful exit strategy will help you to maintain the value of your company and your legacy and will ensure a smooth transition to a new owner.
A good succession plan will maintain positive relationships with employees and business partners that will help to bring a good sale price. It will provide financial security for your heirs and other stakeholders as a plan is in place to deal with unexpected events such as death or illness.
Changes in ownership can be stressful for employees, suppliers and customers so your succession strategy needs to include communication plans to make sure that everyone is kept informed during the changeover thereby ensuring that the business continues to run smoothly.
If you expect to be leaving your business within the next five years you need to start planning right away. Even if your business is fairly new you need to have a plan in place should the unexpected happen.
Susan Ward a Canadian business writer says that 70% of businesses do not survive the transition from the founder to the second generation due to poor or no planning, and she offers the following tips for succession planning:
- Start business succession planning early, five years in advance is good, ten years is better. Think about including a business exit strategy right into your initial business plan.
- Make sure that you involve your family in all business succession planning discussions. This will help to ensure that everyone is aware of your plans. It is important to pay attention to the personal feelings, ambitions and goals of all members of the family who might be directly involved with the succession.
- Plan realistically, if your children do not have the skills or have no interest in taking over the company from you then consider a different family member who might be more capable. If there is no one in the family to take over the business then you should consider selling it. Whatever you decide it should be in the best interests of the business that you have worked hard to make successful.
- Don't plan for everyone to have an equal share in the business. It is fairer for those who have an active part in running the business to have a larger share of the ownership of the business than non active family members. You could also transfer complete ownership to your chosen successor and make other financial arrangements for other members of the family.
- Make sure that you work with and train your successor for a few years so that they are ready and able to take over the reins should the need arise. It can be difficult to teach someone your business skills and share decision making but it will be in the best interests of the business.
- Make sure that you get outside help with your succession planning from your lawyer, accountant and financial planner. They will help you to put together a good plan as well as plan asset transfer tax strategies to minimize taxes due upon your death.
From an article by Susan Ward and Freedom 55 Financial