Start planning early for business succession
Succession planning is often overlooked when it comes to business plans – the earlier you confront the issue of succession, the greater chance your exit strategy will succeed. Make sure you’re well prepared for when it comes time to slow down and hand over the reins with minimal stress.
It’s also important not to feel rushed to sell so you have the best chance of receiving a fair price.
How much time will you need?
How much time will you need to get your business into a position where it can be sold at short notice? It’s important to be prepared in case the unexpected occurs – depending on your individual circumstances, use these timeframes as a guide:
- Two years – if you’re a business owner who’s well prepared, have a strategic plan, and your business is in great shape.
- Three to four years – if you’re a family business owner who wants to eventually hand your business over to professional management.
- Five years or more – if you’re a family business owner looking to pass your business onto the next generation.
The planning process
Depending on how prepared you already are, the length of time for each of the following steps will vary. You’ll need to consider:
- Goals – give yourself around three months, involving family members if necessary, to detail the goals you intend to achieve before handing over the reins.
- Family interests – allow about two months to plan how you’ll best cater for the interests of your family.
- Advice – consult your advisors, lawyer, accountant, and banker over the course of a month.
- Wealth – you may need one to two months to identify all your business’s assets and liabilities and how they’ll be allocated.
- Legacy – if it’s important to leave a footprint, give yourself a month to determine what you want your legacy to be.
- Plan – allow one month to document your options and finalise your plans.
- Review – you may need to make changes to your plan so review it on an ongoing basis, at least annually.
Examine all aspects of your financial situation so you can develop an effective succession plan – we’ll help you look at the big picture.
Finding a successor
Regardless of whether you aim to sell your business or hand it off to family members or employees, it can take a while to find or train a suitable successor.
If you’re going to sell your business, your industry will dictate the number of potential buyers. However, even if you have a large number of prospects, it can require a sizeable amount of time and effort to choose the right one.
Leaving it for family
Passing your business onto family members has its own unique set of complications. Even if your eventual successor has been working in the business for years, there’s still an adjustment period as he or she eases into an ownership role. It’s likely the transition will go much smoother if you begin the process years before your target date to hand over the keys.
It’s important to have your business in perfect shape when you decide to place it on the market. That may be years down the track, but you can begin formulating a wish list of what state you want areas of your business to be in when it’s time to sell. For example, perhaps you’d like to have all your office equipment upgraded to the newest technology before selling.
Make sure you know how much your competition is worth – it will help you defend the price you are asking of your potential buyers.
A management buyout can take time, usually three to six months. Keeping your financial records in immaculate order will make it easier to get organized when the time comes to sell. Your management team will also be interested in seeing financial projections of their first few years in charge.
Another option involves targeting venture capitalists – groups of wealthy investors that pool their resources and invest in high risk, high reward business ventures.
If you’re thinking about selling to venture capitalists, visit Canada’s Venture Capital and Private Equity Association’s website.
A proper business succession plan should deal with all major issues including business valuation, the role of key employees, tax and legal concerns. Because of the many complications involved, begin the process early and seek outside help to ensure your plan is properly tailored to your business – and to your eventual retirement.