The elements of a plan

Business succession and sale

May 11, 2017

This is the second of a two-part analysis – based on insight drawn from the research files of Scotia Wealth Management – about the complexities of business succession and sale, an all-too-frequently overlooked issue for the small business entrepreneur.

As we noted in the first part of our analysis (Part 1: The planning process) business succession and sale planning does not take place in isolation from the larger issue of your overall financial security.

We also noted that, despite almost three-quarters of business owners wanting to transfer control or exit ownership within the next decade, barely a third has a formal succession plan in place. Lack of a plan is the a common reason family businesses fail to survive first-to-second generation ownership.

We promised to supply you with a 10-point checklist highlighting the key elements of a business succession and sale plan, summarizing the necessary steps to take. Here it is.

Elements of a succession & sale plan, a 10-point checklist

  1. Distribution of ownership
    If you are contemplating transferring ownership of your business in the future, a shareholder agreement is a key tool that should be considered.
  2. Selecting and grooming your successor
    Identifying the right person to take over the reins when you leave is a process that requires careful thought and planning.
  3. The role of key employees
    Key employees are vital to the success of ownership transition, and can offer real help in the planning process.
  4. Business valuation
    While you may have a good idea of what your business is worth, you should still consult with a professional business valuator to confirm or determine this crucial figure.
  5. Financing and the mechanics of sale
    Financing the change of ownership should be a key part of your succession plan.
  6. Taxation and legal considerations
    It is important that you consult with your tax and legal advisors early in the process to make sure that your plan achieves your objectives.
  7. Retirement and estate issues
    Since your investment in your business is probably your most significant asset, there are a number of important retirement and estate planning issues that should be addressed.
  8. Timetable
    When you develop your plan, you should ensure that there is a clear timetable, so those involved know exactly what will be expected of them, and when.
  9. Monitoring process
    Be sure to update and adjust your plan as necessary if and when there are changes to your business and/or personal situation.
  10. Contingency considerations and risk management
    If illness or death meant that you were suddenly unavailable to manage the business, who would take over your responsibilities?

One of the principal reasons so many business owners delay or avoid altogether putting together a comprehensive business succession or sale plan is because – as you can see – the process can be quite intimidating.

A significant asset in your estate

According to U.S. based business succession experts Baldwin, Haspel, Burke & Mayer LLC: ‘the closely-held, family business often is the most significant asset of the business owner’s estate.’

The stakes are high. As a business owner, the difference between getting your retirement planning right and getting it wrong can be huge in terms of wealth preservation, tax savings, family financial security and personal peace of mind.

When developing your succession plan it’s important to assemble the right team of professionals. We have no wish to be alarmist, but as we said earlier:

Whatever you do, don’t go it alone.

Daryl Cooper, Portfolio Manager, Scotia Wealth Management, 306-343-3255.
Colleen Schneider, Wealth Advisor, Scotia Wealth Management, 306-664-1860.