Are you one of many Canadian small-business owners with no plan for passing on your business?
Retirement is the most common reason owners exit their businesses, but that doesn’t mean it’s easy to hand over the reins.
Letting go of something you’ve been devoted to for years is hard, especially when it comes to a business you’ve built from the ground up. Your business is your baby. You’ve seen it grow up and you want to see it continue to grow and develop.
But there’s a problem: Only about half of small- and medium-sized enterprises have a succession plan in place, according to a report from the Canadian Federation of Independent Business (CFIB).Not only do half of small business owners not have a plan, only about 9% have a formal, written plan.
So how should one work to transition for passing the torch? Here are a few points for small-business owners to consider:
It’s never too early to get started.
Find out from your family members, advisors or key colleagues whether they’d like to be involved in the next generation of the business. Taking that first step is critical. Don’t put succession planning aside; it’s more important than many business owners think.
Think about your goals and objectives.
What’s your vision for the next generation of the company? Think about how you’d like to get there by writing down goals and objectives for the succession plan. Knowing your overarching goals will help guide the process.
Bring in professionals to help.
It’s important that you not build a succession plan in isolation. Incorporating professionals to consult on your options can help ensure you consider different avenues and have appropriate tax and legal information you need. It’s also important to have an accurate business valuation completed so you know what your company is worth, especially if you’re relying on your business as a form of retirement savings.
Create a succession plan.
Identify possible successors and roles for family members, if that’s applicable. Determine if anyone needs additional support or training. Consider whether the successor has adequate funding to take over the business, and what your level of involvement will be after the transfer. Create a formal written plan that outlines the roles and responsibilities of everyone involved, and set target dates and timeframes.
Build a transition plan.
Consider the options for transferring the business – through purchase, a gift or combination of the two. Establish a timeline for the transition.
Revisit the plan occasionally.
Even a formal, written succession plan needs to be revisited from time to time to ensure it aligns with your personal circumstances.
For further reference, the CFIB has produced Building a Succession Plan, a guide to help business owners with this planning exercise.
It’s never too early to get started! Be sure to make time for succession planning now — it’s worth it in the end.
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