Why you need to plan your business succession ASAP!

Business succession planning starts early. How early? As soon as you start your business. Any business owner who wants to create something of value should consider how they will exit eventually.

Now, this does not mean you should finish your exit plan before you get started, but you should have some sense of the type of legacy you want to leave and who your potential successors are. Will you build something you can leave to your children? Are you building something that can be sold to someone else?

Passing The Business On To Another Generation

Starting is especially important if you develop a family-run business intending to leave it to another generation. Many businesses don’t survive generational transitions. Lisa Taylor wrote on the subject in 2013. In her article, she highlights the problem where children compete to take over. The rivalry in that instance destroyed the business.

Can You Pass It On or Sell It?

Not all businesses can be passed on. For example, are you starting a solopreneur business centred on your specific skills and personality? If so, you won’t have much to pass on to someone else. If this is the case, then you want to maximize your ability to earn income throughout your career. Most of the money you invest will be on developing your skills.

On the other hand, if you build a landscaping business, you can build something to package up and pass on to another generation or a potential buyer. In this case, you want to invest in the business and your processes.

Preparing To Sell

If you are looking to sell, buyers look for consistent cash flow and low risk. It would be best if you structured your business to maximize both. Systems, contracts, diversification, and consistent income streams will make your business attractive. In contrast, wildly variable income, lack of written contracts, and key, indispensable personnel make it less.

Developing documented processes provides business stability by making the work done by key employees “public.” This way, your organization will benefit from employees’ key competencies but won’t be held hostage by them. If something happens to that person’s employment, the business should be able to replace them.

Additional Benefits of Formalized Systems

Also, demonstrating employees, key suppliers, and customers are under contract (if possible) creates tangible benefits. Properly drafted employment agreements mitigate risks associated with wrongful dismissal claims. Contracts or agreements with crucial suppliers provide evidence of the terms and conditions of the relationship. These become reviewable and measurable.

Accounting Considerations

Finally, if cash has accumulated in the corporation over the years (provided you are incorporated), you must develop a plan to transfer your cash from the corporation to yourself. If you move all the funds in one year, you will be sharing a good portion of your money with CRA. The more cash you have, the longer it will take to transfer. You should consult with your accountant as early as possible.

Conclusion

These are just a few topics for thought. For more information on the subject, you can also read this article from the CBC with six tips on starting the process.

The main point is by structuring and building your business properly, you won’t have to implement a bunch of changes when you start thinking of selling. Because by the time you start thinking about getting out, it will probably be too late to make the changes that need to be made.

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Disclaimer – Legalese

This article is presented for informational purposes only. The content does not constitute legal advice or solicitation and does not create a solicitor-client relationship (this means that I am not your lawyer until we both agree that I am). If you are seeking advice on specific matters, please contact Philippe Richer at 204.925.1900. We cannot consider any unsolicited information sent to the author as solicitor-client privileged (this means confidential).

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