The ABC’s of Succession Planning
For a small business owner, succession planning is anything but simple or easy.
Perhaps that’s why business owners so often avoid it.
It’s another case of the longest journey beginning with a single step.
In that spirit, these three steps can start you thinking about succession planning – clarifying the “why”, the “who”, and what to do:
A succession plan enhances the value of your business, whether you plan to sell, retire fully, or just step back. Your investment and years of hard work are better protected and realized with one or more strong successors. Your family and/or valued employees are protected, especially in case of disabling illness or accident, or your sudden death.
A succession plan helps provide continuity and confidence for clients, suppliers, and investors. It can also act as an employee retention and development strategy, and allows you to step back from day-to-day operations without selling or winding the business down.
A strong succession plan involves a team effort. Clearly, you need to take time to find and evaluate strong successors. Family, business partners, key employees and managers need to understand what is happening and why.
Next, get professional advisors involved. Lawyers and accountants, insurance and financial advisors, and business valuators bring specialized knowledge, options and practical strategies to the task.
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According to experts in the field, emotional issues are among the top pitfalls encountered by business owners planning for succession or sale. Owners often avoid or delay planning due to anxiety about change, “letting go” and embracing a new role and identity. Having a business advisor on your succession team can help you sort out these personal issues, facilitate stakeholder discussions, maintain your “big picture” focus, and keep your plan on track.
C. What? Knowing what your business has to offer is a key first step. Investors generally look for strategic assets, turn-key systems, strong management, good market positioning, and the promise of a profitable future.
For many businesses, a succession plan is a key driver of your business valuation. The process includes selecting and training successors, but also having a contingency plan if the original one doesn’t work out.
Thanks to the baby boomers, we can expect a flood of small businesses to change hands in the next decade. How many? According to CIBC, as much as $1.2 trillion in assets was attached to some 500,000 Canadian businesses by 2010. The resulting over-supply of sellers and scarce number of buyers will surely affect many business valuations.
A succession plan can help your business stand out from the crowd. It can also mitigate the risks of a forced sale due to ill health, family disputes, industry shifts or market changes.
Preparing early simply increases your options.
The Canadian Federation of Independent Business (CFIB) has established that only 10% of business owners planning to sell have a formal succession plan in place. Thirty-eight per cent have only an “informal” plan, but 52% have no plan at all. That’s a recipe for some interesting times ahead!
To further help owners of small businesses clarify what they might need from a succession plan, the CFIB has prepared a list of questions for your consideration: http://www.cfib.ca/pdfs/succession_qa_e.pdf
Solid succession planning is not a quick-fix project. Depending on the size and complexity of your business, it can take several years to fully implement. Taking even one step today to start the process can make all the difference.
© Mara Osis, 2012-present
Mara Osis is the Principal of Amati Business Group, a collection of professional advisors dedicated to helping owner-managed small businesses “make their ideal real”. To subscribe to our free e-newsletter for business owners, or to get more information on how we work, who we work with, and the results our clients have achieved with us, please visit http://www.amatibusinessgroup.com
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