Businesses, like individuals, need to plan for unexpected events. An owner-operator's disability or death can quickly undermine a lifetime's worth of work, says Susan Cranston, Assistant Vice-President, Small Business Marketing and Advisor Services, Manulife Financial.
While business owners typically spend a great deal of each day planning for the short term – calculating how much inventory to order, dealing with credit requirements, developing ways to increase sales – they usually spend very little time each year planning for the eventual transfer of their business.
Here are five keys to a good business succession plan:
- Start early. Business owners might think that their exit is far off, but circumstances change. Begin the process as early as possible, Ms. Cranston advises. Even if a succession plan isn’t fully formed, at least you’re starting to give it some thought, and can have time to consider the widest array of possible options.
- Build a team of advisors. Looking at the requirements and impacts of succession takes time and also demands a range of expertise. For both reasons, business owners should assemble a succession plan advisory team. That can include a lawyer, accountant, banker, financial advisor, and other professional resources as required. Owners need to look at the big picture, from legal implications to taxes, says Ms. Cranston.
- Have a plan B…and C…and D. An owner may be thinking about turning the business over to a family member, bringing in a partner or selling to an outside party. All can be reasonable options, but owners should plan for the unexpected, too, says Ms. Cranston. What happens if the children lose interest in the family business or aren’t qualified? What if the internal heir apparent suddenly leaves? What if an illness or death derails your plans? “If option A is off the table, you need to have contingencies,” she says.
- Consider multiple timeframes. Even if you don’t intend to exit for years, prepare for various scenarios. What would succession look like in six months, two years or more? Something unforeseen – from a change in your personal plans, to a surprise offer by a competitor – can always alter your timing. Being ready for succession at any moment can help ensure that the business continues to thrive.
- Do the groundwork. Review whether the elements are in place to allow you to implement your succession plan. Do you have an ongoing understanding of your business valuation? Do you have a talent management plan to groom possible successors? Have you identified viable external candidates? Do you have agreements that outline ‘buy and sell’ provisions for partners – to ensure the orderly transfer of ownership interests? This is a fluid process, Ms. Cranston says.