For owners of small businesses or for that matter family businesses, succession planning is of critical importance. The earlier one can start on a succession plan the more smoothly it can be implemented when the time comes for a change of ownership.
According to the Canadian Federation of Independent Business (CFIB), only 9% of small business owners in Canada actually have a documented and formalized succession plan in place for their businesses.
We understand that for many small business owners, their business is like their baby. It can be hard to let go or think about an ownership change while you are still alive and active.
However, life is unpredictable and rarely works out as planned. Having an exit strategy or a carefully crafted succession plan can ensure not just the continuity of the business but also one’s legacy.
Here is everything you need to know about succession planning for Canadian business owners.
Why is Business Succession Planning Important?
Without succession planning the future of any business is uncertain. This can create many problems within the business, especially, one that is family owned. Not having a potential successor to a business can cause rifts in family relationships and can even compromise the value and goodwill of a business, even if it is in good standing.
What Is Succession Planning?
Simply put, business succession planning is the process of deciding who will take over the reins of the business in the event that the owner or CEO decides to retire or the inevitable happens.
Succession planning involves devising a strategy that helps smoothly transition ownership from the current owner to their chosen successor.
It involves making short-term and long-term plans that help employees and other stakeholders better acclimate to the changes that new ownership or leadership brings.
Company Ownership
For larger companies, succession planning is a continuous process that is updated and reevaluated each year. This is done to ensure that at any given time the company always has a replacement ready to assume control.
The CEO and board of directors generally oversee succession planning in larger companies. However, for smaller family-owned businesses, succession planning largely comes down to the owner and their ability to train and mentor the next generation on how to effectively sustain and grow the business.
The Benefits Of Succession Planning
As one would imagine, there are plenty of benefits when it comes to succession planning whether it be for small, medium, or large businesses.
Succession planning can help:
- Ensure smooth transition and continuity of the business
- Safeguard the legacy of the business
- Provide financial security for the family or stakeholders
- Preserve family harmony
- Help maximize value for the business
- Inspire confidence in employees and other stakeholders
- Minimize taxes payable
- Minimize inheritance issues
Family Business Succession Planning - How To Avoid Fights Over Your Estate?
In any family-owned business, disputes and rifts are bound to arise as a result of improper succession planning or implementation. This can pose a very real threat to the continuity and growth of the business and can even lead to fights over ownership of assets and leadership.
When estate assets are part of a family business, with the owner having multiple children, this can create further complications. Having multiple children (with some working in the business and others not) makes inheritance and succession a lot trickier. This is because, in most cases, children not involved in the business would want their inheritance from other estate assets rather than being named a minority co-owner alongside their working siblings.
This is but one of the many complications that can arise with succession planning that can lead to fights over your estate. As such, the sooner you start with a succession plan the better. If you plan on retiring from the business in the next five years, you should already have a plan in place.
The transition of succession can take anywhere from two to five years as employees, family members, and other stakeholders become accustomed to the new leadership and the distribution of business roles and assets.
In many instances, it is ‘taxes’ and ‘family discord’ that spell the demise of many Canadian small businesses. Both these issues can easily be prevented by a well-compiled and thought-out succession plan.
Professionals that you can talk to to help you prepare and implement a succession plan include accountants, lawyers, bankers, and advisors.
What's Your Exit Strategy?
Having an exit plan for your business is more important now than it ever was. Changing market conditions, global inflation, supply chain issues, and much more are impacting businesses on a daily basis.
Dying without a succession plan or exit strategy in place can result in a massive tax bill. The way inheritance is divided according to Canadian laws may be completely different from what the deceased intended.
That is why having a will and a succession plan is so vital. Either you have to find someone to take over the reins of the business or sell it. Deciding which option is best comes down to many factors which are best discussed with a financial advisor.
Business Succession Planning & Advisory Services In Halifax
If you are seeking the right people to be alongside you during this sensitive period of business transition look no further than Eastport Financial. Located in the picturesque coastal city of Halifax, NS, our mission is to add meaning to financial flow to help you live with purpose!
Those seeking investment, insurance, retirement, and estate planning advisory services should get in touch with our wonderful team of expert advisors.
Conclusion
Succession planning, as proven by this article, is essential in order for a business to run smoothly and without any interruptions during periods of leadership change. With nearly two-thirds of Canadian small business owners planning to exit their businesses in the next five years the need for succession planning is paramount.
To learn more about how you can get started on devising a succession plan to smoothly transition the ownership of your business, get in touch with one of our advisors today!
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