Business Succession Planning
Surveys show that almost two-thirds of all small and medium-sized businesses plan to exit their business in the next decade. However, only about one-third of these entrepreneurs have a formal succession plan in place.
Business succession planning can be complex and time-consuming, encompassing everything from personal retirement planning, business optimization plans, and tax-reduction strategies to addressing family issues that may arise from a change in business ownership.
The planning process explores all of your options in order to protect your investment in the business. Depending on your personal objectives, you may focus on defining strategies to generate the best possible sale price, or perhaps your primary goal is to keep the business in the family and transition ownership to the next generation. Mapping out processes which ensure your practice’s ongoing stability and growth, satisfying various stakeholders, selecting and grooming a successor, as well as establishing a timetable for both management and ownership transition, are all key to a successful succession plan.
Key tips to keep in mind:
- Start the planning process early to provide adequate time to implement strategies which will ensure a smooth transition and which may reduce tax liabilities.
- Realistically identify your best options for a future owner, be they a family member, associates, employees or third party buyers.
- No matter who the choice of future successor is, prepare for unplanned events by creating an estate plan which includes necessary wills, powers of attorney, trust and insurance provisions.
- Seek expert advice from qualified business valuators to ensure your financial expectations are realistic.
- Create a communication plan that manages the process of presenting information to family, employees, customers and suppliers.
- Work with a team of professionals that include your financial advisor, lawyer, accountant, estate planner and business banker.
Understanding the value of your business is critical in driving its long term value up. A clear perspective on what motivates prospective buyers for professional firms is important for both building and communicating value. Consider working with professional firms who can help you market the value you have created in your practice. They will seek potential associates or new practioners, strategic purchasers who may be looking to expand their firms, or add synergistic services through acquisition and even private equity firms that want to acquire and resell based on financial return targets.
The importance of effective succession planning becomes crystal clear against the statistical reality that one-third of small business owners report that the proceeds from the sale of their business are expected to be their main source of retirement income. While your reliance on the financial proceeds of the sale process may be many years in the future, steps you take today can ensure your vision of life after practice ownership becomes a reality.
To learn more, speak to a Scotiabank Small Business advisor today.