The actual length of time it takes to create a succession plan can be as little as a few months or a few years if a more complex handing over of the reins is desired
Consult a professional to discover the best option for your business
Due to a smaller management structure and fewer staff, small business owners are even more focused than heads of large corporations in maintaining success.
Unfortunately, this often leaves less time and fewer resources to plan in advance for succession, whether their ultimate goal is to pass on their business to family or associates, or to sell.
As a result Fraser Hartley, partner, business law, for Edwards, Kenny & Bray LLP (EKB), has had his fair share of older entrepreneurs come to his office on the brink of retirement but with no concrete plans on what to do with their business. “Frankly, even if they have an idea of how they want to exit their business, taking less than a year in advance to actively plan for succession is cutting it a little thin,” he says.
Realistically, there are several succession categories: 1) sell to a third party; 2) pass on to family members; 3) install professional managers and step back from a day to day role but stay on as a shareholder; 4) gradually wind down the business and harvest as much cash as possible; and 5) freefall without a plan. Hartley offers some insight on when to start thinking about succession. “It’s never too early, and I would recommend to any business owner to have an initial conversation with family and advisers a full decade before he or she is set to retire.”
The rationale behind this strategy is simple: “The reality of succession is that it’s extremely hard for entrepreneurs to sell their business, step back and let others take over, or wind it down in a strategic manner; and yet without planning for one of these scenarios, business owners often end up letting their businesses slowly atrophy,” says Hartley. “Having a succession goal on your radar well in advance prepares you psychologically; and then it’s a bit easier to consult with experts such as us several years in advance to plot out your goals.”
Given its extensive experience representing clients both small and large in the broad spectrum of transactions under the banner of business law, EKB can help even the most unprepared and uncertain entrepreneur to achieve clarity — and success — in succession planning. For example, if the strategy is to sell, EKB provides assistance with getting the best price for one’s business; with sales negotiation; management transition; and with post-sale tax impacts.
Hartley says, “We also provide assistance with regards to how your succession plan relates to your personal estate and taxes — and ultimately we can help the client develop several succession options, because the speed at which market forces — and even business owners’ own personal goals — can change make flexibility an asset.”
The actual length of time it takes to execute a succession plan can be as little as a few months (if the objective is a straight sale) or a few years if a more complex "handing over of the reins" is desired. Deciding among the available options and developing an appropriate plan can take even longer.
The only sure-fire strategy to avoid at all costs, concludes Hartley, “is for the business owner to carry on under the assumption that everything will work out for the best. So even if you’re young, start thinking about what you want to do at the end of your career.”