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Succession Planning Guide

What is succession or transition planning?

Succession planning is about finding the right strategy for handing over your business to someone else and being prepared for this transition. As the owner, you are responsible for the transfer of knowledge, skills, labour, management, control and ownership of the business. At the same time, you need to ensure your own financial future. It is wise to start planning early because a solid succession plan could take more time than you expect.

Why plan for business succession?

A good succession plan will help make the transfer of your business go smoothly, and allow you to maintain good relationships with employees and business partners. Succession planning helps you:

• Protect the legacy of your business
• Maintain a service for your community
• Build value for your business
• Provide financial security for your family and your stakeholders
• Deal with unexpected events (illness, accident or death)
• Prepare for the future

• Business Transition - The Entrepreneur’s Guide
  
  http://www.bdc.ca/en/Documents/businesscontinuityplanning/BDC_2009TransitionGuide_EN_low.pdf
  Whether transferring ownership or selling your business, you will have decisions to make; plan for the transition today.

When do you start planning, and how? ↑ top of page

Start planning early if you intend to retire or exit from your business as the process could take up to five years.

A business succession plan can help you make important decisions about ownership, maximizing your company's value and tax strategies. A plan should touch on some of the following areas:

• Goals and objectives
  • Develop a vision for the business.
  • Determine your retirement or post business ownership goals.
• Decision making
  • If appropriate, involve family members in the development of the plan.
  • Have a conflict resolution mechanism — a pre-established plan to resolve any conflicts between family members, partners and/or employees.
  • Select a successor.
• Training
  • Identify the core skills and competencies that your successor will need.
  • Plan for training of the new owner(s).
• Estate planning
  • Prepare a financial plan and determine the tax implications of the transition of your business.
• Contingency planning
  • Have a contingency plan that includes the financial resources required to ensure the survival of your business in case of illness, accidents and even death.
• Corporate structure and transfer methods
  • Determine your options as a sole proprietor, partner or owner of a corporation.
  • Decide whether you wish to transfer or sell the business to your successor.
• Business valuation
  • Find out the fair market value of your business.
• Exit strategy
  • Establish a timeline for easing your way out of the business.
• Implementation and follow up
  • Review and update your plan regularly.

It is a good idea to contact key advisors such as accountants, bankers and lawyers when developing your succession plan. Communication with your successor(s) is important in order that they understand their roles in the business and collaborate in the transition process.

What are your options? ↑ top of page

Some of the options to consider when planning for your business succession are:

• Transfer to a family member
  • Identify the candidate(s) and discuss the plan; make arrangements for the transfer or sale of your business to your relative.
• Sell to a partner, management team or employees
  • Sell the business to current employees who know the business and are interested in seeing it continue.
• Sell to a third party
  • Find a buyer and finalize the sale.

• Transition planning: what you need to know
  
  http://www.bdc.ca/en/advice_centre/articles/Pages/succession_questions.aspx
  Know the options available to you when it's time to hand your business over to somebody else.
• A Common Exit Strategy (management buyout)
  
  http://www.bdc.ca/en/advice_centre/articles/Pages/succession_mbo.aspx
  Learn more about management buyout, which consists of the management team pooling resources to purchase all or part of the business that they manage.
• Selling a Business: Questions and Answers
  
  http://www.cra-arc.gc.ca/tx/bsnss/tpcs/lf-vnts/sllng/menu-eng.html
  When selling your business or even part of your business, the Canada Revenue Agency can answer your questions on subjects such as business number, payroll and GST/HST.

Seeking professional services ↑ top of page

The use of professional services is essential to the success of a small business, including its transfer to another owner. Professionals can provide knowledge and expertise in areas where you may have little experience. They can also round out your management team to ensure that your business is operating efficiently.

As an entrepreneur, there are four types of professionals you may wish to consult:

• Accountant
• Lawyer
• Banker
• Insurance broker

When seeking out professional help, choose carefully. Find someone with whom you feel you can establish a good working relationship. For first time meetings, be prepared to explain your situation and what you are looking for. Ask what services the firm provides and how it can assist you. Do not forget to ask how much the firm charges for its services.

What is the value of your business? ↑ top of page

Before you sell or exit your business, you will need to evaluate your business revenues, assets, property, etc. A number of other factors will need to be assessed like future potential profit, competitors, intellectual property, and customer base. Buyers will be interested in your business figures and history. A business valuator can help you in determining the value of your business.

• Put a price tag on your business: A guide to business valuation
  
  http://www.canadabusiness.ca/eng/guide/1398/
  Before you approach potential investors or buyers for your business, you need to assess the value of your business. Learn about the different ways to calculate the value.
• What's your Business Worth?
  
  http://www.bdc.ca/en/advice_centre/articles/Pages/succession_value.aspx
  Learn how to determine the value of your business and find ways to improve it.
• Canadian Institute of Chartered Business Valuators
  
  http://www.cicbv.ca/
  Enlist the help of an expert who can quantify the worth of all, or part, of your business or its securities.

What are the financial, legal and tax implications of business succession? ↑ top of page

There are many financial, legal and tax implications when transferring or selling your business. Each business and business owner has their own unique situation and seeking advice from a tax professional could help answer some of these following questions:

• Do you require a loan to finance your transaction?
• What are the implications if your business is a sole proprietorship, partnership or a corporation?
• Are you eligible for the capital gains exemption?
• How do you minimize your tax bill?
• Can you take advantage of an estate freeze? (Freezing the value of the shares you own and issuing common shares to adult children who will be carrying on the business)

• Closing Accounts
  
  http://www.canadabusiness.ca/eng/summary/2649/
  Applies to: All of Canada
  When closing your business, don't forget to complete forms required by Canada Revenue Agency.
• Corporations Canada: Dissolving a Corporation
  
  http://www.canadabusiness.ca/eng/summary/1375/
  Applies to: All of Canada
  Learn the steps to take and what forms are needed to obtain approval for the legal termination of your corporation under the Canada Business Corporations Act.

How do you prepare for transition? ↑ top of page

• Establish clear but flexible timelines to help keep you on track.
• Set milestones for achieving goals and objectives.
• Keep the succession plan up to date to reflect any changes or decisions; review and modify your plan at least once a year as things can change quickly in the business world.
• Prepare a communication plan for notifying your successor, employees, suppliers and customers of your succession plans.
• Seek professional advice.

Additional resources on succession planning ↑ top of page

• RBC Business Succession Planning: Your Essential Road Map
  
  http://www.rbcroyalbank.com/commercial/advice/business-succession/your-essential-road-map.html
  Use this workbook to write notes as you develop your succession plan.
• What's next for your business?
  
  http://www4.bmo.com/succession/index.html
  Follow a step by step guide to help you navigate through the complex process of succession planning for your business, including goal setting, strategy development and the execution phase.
• CIBC - Succession Planning
  
  http://www.cibc.com/ca/small-business/extra/succession-planning.html
  The CIBC has articles, tools and services to help you build a succession plan that reflects your personal and business goals.
• Succession Planning and Business Transfer
  
  http://www.infoentrepreneurs.org/en/trouver-nos-guides-de-gestion/-/asset_publisher/wXA6/content/view_maximized/plan-de-releve-et-transfert-d-entreprise?redirect=%2Fen%2Ftrouver-nos-guides-de-gestion
  Know your options when it comes to succession and identify the best path for you and your company to follow.