If you own and lead a business, there's a very important question you need to ask yourself: Do You Have a Succession Plan in Place?
The statistics are surprisingly low when it comes to the number of business-owners who currently have a written succession plan in place. Numerous studies in recent years consistently show less than half of Canadian business owners do.
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| Ready to Pass the Baton? |
Having a plan - in writing - is essential for the well-being of both your business, and yourself. A well thought-out strategy must be in place for what will happen to the business when you leave it, whether that is through retirement, illness, or untimely death. Keep in mind that a will is not the same thing as a succession plan. A proper Succession Plan can help facilitate the right transition to keep your business running successfully, but also do so in a way that maximizes the financial opportunities and tax benefits to you and your successor(s). Allow us to illuminate some of the key questions and considerations:
1. Have you identified the right person (or people) to take over for you in key leadership positions? If you don't have someone internal you can pass the reigns to - especially on short notice - it's time to get moving. It takes time to develop and prepare someone for such an important position, so the sooner you start preparing them, the better. If the person you have in mind is external, and therefore unfamiliar with daily operations and personnel, it will take even longer. There's no time like the present to get prepared. Be sure you are actively developing this person to take over successfully and keep things running strongly.
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| Are You Prepared to Choose? |
2. Does your Successor know your intentions? Do other potential candidates know as well? In cases of family businesses, there may be assumptions happening behind the scenes that you haven't considered. If you have a child working with you in the business, that child may assume they will take over when you leave. Of course, that may not be the best option if they do not presently possess the skill set necessary to do so. If you have more than one child working with you, there may be issues of jealousy or anger that could come into play if one child is chosen over another. Those emotions could have a negative effect on the business. A plan that is known ahead of time - to all relevant parties - can significantly help avoid problems and frustrations later on. You also need to consider that who is going to own the company is not necessarily the same thing as who is going to run the company. If you want to leave the business to your children - even if they won't be running it - there are many tax implications that you will want to evaluate. Succession plan strategies for family businesses involve many factors you'll need to consider wisely.
3. Are you planning to Sell your Business? If you are considering this approach, you need to be aware of all the tax implications, as well as setting the company up to be sold for its maximum value. That means having the company in a strong position with its customers and partners, and ensuring that position can be clearly communicated and documented for prospective buyers. Knowing the future possibilities for your business, and how social and economic conditions could affect them, should also have you thinking about the best time to sell. You have to consider that the best time to sell may not align with your ideal retirement date, so having a flexible plan is key. You should also have a buy-sell agreement in place that is in order and funded to reduce risk and minimize loss.
4. Does the Succession Plan for your Business and your Personal Financial Plan align? As the business owner, are you helping save for your retirement by paying yourself RRSPs and enjoying the lower tax rate of doing so, or are you assuming that all your retirement needs will be met when you sell the business? Are you funding an IPP (Individual Pension Plan) that could be written off as a business expense? You may also want to look into implementing an Estate Freeze. There may be far more tax-effective strategies than what you are currently doing, and there's no better time than right now to put them in place.
Having a financial planner who is well-versed in Succession Planning is paramount to creating a plan that helps the business continue smoothly and successfully, and helps you retire with maximum financial benefit.
If you are ready to get your plan on paper, give us a call. Continuum II Inc. is in the unique position of having a team of seasoned financial professionals - who also have a wealth of experience with succession planning - to guide you effortlessly through this challenging process and set your mind at ease.
