Creating a business succession plan
There’s a common misconception about business succession planning. It has a reputation for being a process business owners take when they’re nearing retirement.
This might have been true a decade or so ago, but Canada’s entrepreneurial culture has shaken this up and made this a must-complete task at the beginning of a new venture.
Related: 5 success factors all entrepreneurs share
Why plan for your own departure?
Whether you own many companies or focus all of your efforts on one, a succession plan will help you prepare for the unpredictable future. Most importantly, it can protect the business, brand and unique culture you’ve created.
It’s also a commitment to your client base and ensures that long after you’ve passed the hat, the business continues to meet the needs of your customers and employees.
Challenges are everywhere
There are also elements beyond your control. Changes in federal or provincial legislation can create unforeseen costs such as wage increases for employees. If you make a product that relies on imported resources, trade negotiations can disrupt the bedrock of your business.
And then there are natural disasters. The repairs might be too steep to revitalize the establishment you’ve worked hard to create.
Starting your business succession plan
Depending on what stage you’re at with your business, it might not be clear which succession pathway you want to choose. Having a list of options is a great starting point and it will be at the ready when you decide it’s time to build out the details.
Who will run the business?
This could be one of the hardest decisions for a business owner to make. If the company is family-run, the weight of the decision can be extremely stressful.
- Which child should take over the business?
- Who has vision for its future?
- Who will best represent the family name that’s associated with it?
Larger companies have unique challenges as well. That’s why there are various pathways to consider, based on the structure of your company.
If you started your business with someone, you can sell your shares to your co-owner(s). You might have already drafted a mutual agreement with your partners which states that the business interest can be purchased from next of kin or a spouse in the event of an untimely death.
Pass your business to someone you trust, be it an immediate or extended family member. This is a chosen path for family-run businesses, where children of the founder often work for the company, giving them an intimate perspective into how the company works. As this is a major family decision, it has the potential to impact the dynamics of a family.
Put your company in the hands of a trusted employee who lives and breathes what your company stands for and has a vision for its future.
Once you have someone in mind, create a process that will give the employee the chance to take over the business when you’re ready to leave. This will ease the financial pressures.
Alternately, you could seek out an entrepreneur or find someone outside of your company who has the skills to fill your shoes. If you’re very attached to your business, this might not be the pathway for you, as it’s difficult to predict if the external source truly shares your business vision or has something else in mind.
Now sketch out a plan
Once you’ve chosen your business successor, take a deep dive into your business by identifying the critical positions that are valuable to the company.
Identify competencies and fold this into your succession planning. If your company is large, you’ll want to look at succession management strategies as well, which sketches out timelines, roles and responsibilities for your leadership team.
Now that you have an idea of what direction you’ll pursue, consider using the Business Transition Planning eBook by the Business Development Bank of Canada to hammer out the details. It’s a great resource that will walk you through issues like:
- Negotiating the best sale price (if applicable)
- Maximizing value
- Financing sources
- Defining the ways you can make your exit as smooth as possible
If any of the above doesn’t seem to fit your business and you’re looking for an unconventional way to pass it on, you might consider holding a contest. A store owner in Hamilton, Ontario made headlines for doing this in 2016. His no-strings attached, golden ticket approach just might land you the right successor.
Business succession plan recap
It’s important to remember that, when done well, a business succession plan can take five or more years to roll out. Getting a head start positions you and your company for success as you’re prepared to decide what happens when you sell up, leave the business to someone else, or retire.
Keep these tips in mind as you plan:
- Start thinking about your plan early and create a blueprint. As your business changes, so will your plan.
- Select a successor pathway.
- Evaluate your management team, review core competencies and develop timelines.
- Once you’re ready to add some meat to your plan, read the Business Transition Planning eBook by the Business Development Bank of Canada.
Once your plan is set, you’ll find yourself resting easier because your business legacy is safe, come what may.
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