Succession Planning

versus 
IT'S MY BUSINESS AND I'LL SELL IT WHEN I WANT TO!

The decision to sell/transfer ownership is the biggest financial and emotional decision a business owner will make (short of the decision to start their own business). The reason for this decision now is simple - the boomers are at the age where the businesses they built are now ready for succession. With so many more business owners at retirement age, the number of businesses requiring succession planning or exit services h as grown. For instance, the Province of Manitoba has estimated that 40 per cent of small and medium-sized business owners plan to retire in the next five years. This means Manitoba's business community will undergo a significant transition with the potential transfer of millions of dollars in business assets.

In my view the rate of turnover in business ownership and leadership will become the leading issue for many of our leaders - "how do I find a potential replacement with the skills, expertise and financing who will take over my business". The sad fact of all this is that 90% of business owners have no plan for succession. That is reflected in the realization that 65 - 75% of second generation businesses will fail. Why do business owners not have a succession plan? Many (60%) think it is too early to plan and a large segment (27%) feel they do not have time to plan, feel it is too complex and/or they do not know where to start. They may just not want to talk about the business without them in it. People inherently do not like discussing a future without them.

I've seen too many business owners work too hard for too long only to see the value of their business erode because they did not prepare themselves and their business for succession and transition. Business owners deserve better - they deserve the personal satisfaction of leaving a legacy for their family or the community and they deserve the financial reward at time of sale that they worked so hard to achieve.

Most owners give some attention to the technical issues which include tax and legal implications of selling, financing of the sale, division of profits, etc. However it generally stops there. What needs to be considered are long-term personal and family goals, selecting and training a successor, identifying roles for key members of the business and how will disputes be handled, etc. A good succession plan will ensure financial stability of the business, it will reduce tax liabilities, it will set a timeline for transition, and it will provide stability for employees.

Succession is not like other business decisions that are built about events (i.e. should we buy that building or piece of equipment) which can be looked at in relative isolation. This decision is a process playing out over a number of years, involving all a business's advisors (lawyer, accountant, HR and financial planners) and requires many skills that business owners may not possess.

Owners often only give consideration to exit and succession when the owner thinks it is time to leave the business or is approached by an offer; effectively too late to do any successful planning. It is not much of a stretch to believe that good planning and focused attention can increase the value of a business by 25% - try getting that return elsewhere!

There really is never a time when it is too early to think about preparing your business for sale but there is definitely a time when it is too late to do anything to add value to your business. My advice to small business owners is that the sooner they understand this, the better they and their company will be prepared for an eventual succession and the greater personal satisfaction and financial reward they will reap.

The planning process is often piecemeal with services like tax planning, business valuation, and management grooming and mentoring being considered separately and not within an overall plan. The lost business value and emotional stress of a failed business sale far outweighs the price to ensure your business is structured correctly and presented to the most interested buyers. Business owners deserve better when considering the sale or succession of their business and I enjoy assisting business owners in navigating through these complex intertwined decisions,

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