According to recent statistics from Industry Canada, nearly 50% of small and medium-sized business owners are between 50 and 64 years of age. It’s estimated that 70% of business owners will be retiring in the coming decade. What’s more, of those up-and-coming retirees, only 30% have a succession plan in place for their businesses.
Succession planning is important. Without it, your business might sell for much less than it’s worth. Having a plan in place early means you’ll make the best decisions about the future of your business and have time to implement them.
What are the most important things to remember when succession planning? Consider these tips to help you prepare for a smooth transition.
1. Develop a timeline
Handing over your business to family or a buyer is like any other long-term project. Once you know the outcome you’re working toward, you’ll need to break things down into manageable steps.
Define your short term goals and plan your milestones. You’ll need to work out a reasonable timeline to plan, implement the change, and stick to it.
As with estate planning, one of the biggest challenges with succession planning is psychological. It’s tough for business owners to think about their companies going on without them.
But creating a timeline can help turn your mind away from the emotions you may have about leaving your business toward a positive outlook – taking meaningful action to protect your business and prepare for a comfortable future.
2. Delegate effectively
Another common challenge with succession planning is letting go of control. It’s a crucial step, however, to allow a successor to step in and try on the role. It means letting someone else make difficult decisions and a few mistakes.
But the long-term success of your business depends on your successor learning to do your job as well as you did. If your successor is capable, they will step up. If not, finding out early is a good thing.
You’ll know what mentoring or training is required, or have the opportunity to find someone who’s a better fit.
3. Keep it under your hat
Selling a business is different than selling a home. You’ll want to keep things quiet and limit your discussions to your broker only.
If your stakeholders and staff find out about your plans too soon, you may actually harm the sale. Buyer confidence can waiver if customers get wind of the news, impacting profits.
Your employees may also leave if they fear their jobs are unstable.
4. Assemble a team of advisors
Professional advisors will help you consider your alternatives, make choices, and map out your path to the successful sale of your business.
It’s important to work with advisors because an effective ownership transition plan is complex. You’ll need tax and legal counsel, personal financial planning and business valuation expertise.
5. Create a financial plan
For business owners, identifying the most tax efficient methods to receive income from a business starts early and continues right up to the date the business is sold.
The expertise of advisors, such as financial planners, accountants, lawyers, and wealth management experts, can have a significant impact on the financial results you achieve personally over your lifetime.
