- 2015 Federal Election
It's never too early to plan for succession
Does planning succession for your business feel like planning your own funeral? You are not alone. About half of business owners report not having a formal, written succession plan in place, while 40 per cent have an informal, unwritten plan. Only about one in 10 has a formal plan.
Reluctance to put a plan in place is understandable. The process seems daunting: Finding a buyer or suitable successor, thinking through tax implications, valuing the business, legal questions, financing issues, roles of key staff through the transition, and timelines. None of that sounds like a good time to most people and business owners are busier than most with the day-to-day challenges of running a business.
That doesn't change the importance of planning. Although the recent recession has delayed many business owners' plans to exit their businesses, there is no turning back the clock on the baby-boom generation of business owners that is fast approaching retirement. As a result, there is going to be a massive turnover of business ownership and assets in the near future.
The Canadian Federation of Independent Business estimates that about $1 trillion of small- and mid-size business assets will change hands in 10 years. CIBC just came up with its own estimate that includes bigger businesses suggesting that it could be as high as $1.9 trillion in five years. Both are staggering figures making it important to the Canadian economy that this transition goes well.
It's also important to the individual entrepreneurs and would-be entrepreneurs that the transition goes well. Why aren't business owners planning? The top three reasons cited on a recent CFIB survey include too early to plan, no time to plan and not being able to find the right tools.
It's never too early to plan. Even the 26-year-old who just started a business should have a plan. It may not be overly formal. But what happens if you get hit by the proverbial bus? Is there someone who could run things temporarily if you couldn't? Could you shut down temporarily?
For those closer to retirement, having a more formal plan becomes very important. Succession isn't something that can be done quickly on the back of an envelope. It typically involves the help of professionals such as lawyers and accountants.
For those with no time to plan, this isn't a project that needs to be tackled all at once. A regular meeting with an accountant or banker is a great time to ask for advice on first steps toward succession planning.
CFIB has a guide to succession planning on its website that is a great tool for business owners to get familiar with the issues that need to be discussed with professionals. Giving such material a quick read is a good start.
Starting is the hardest part. But as Benjamin Franklin said: "By failing to prepare, you are preparing to fail." So how about succession planning as a 2013 business resolution?
Laura Jones is executive vice-president for the Canadian Federation of Independent Business. She can be reached at email@example.com