Succession Planning Basics

Succession Planning
Basics

Representing business owners world wide from Vancouver, Canada
http://www.ck-globalsolutions.com/ +1 604 909-1271

Succession Planning Basics

• Succession planning is a long-term process, not a one-
time event. It is the process of formally determining who
will take over your business and how that transition will
occur.
• Seemingly straightforward at first, succession planning
involves many factors and can be a lengthy and complex
process.
• Minimizing transition risks involves adopting a clear and
comprehensive succession plan years before it is
needed.
• Plan at least five years in advance to protect your
business, your family and your capital.

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What Is At Stake

• Without a succession plan, a business might fall into the
hands of someone ill-prepared to run it.
• Or you and your family might be forced to sell it for much
less than it’s worth. That is, if it sells at all.
• If you want to capitalize on your investment, whether by
selling your business and/or handing it over to the next
generation, putting a succession planning strategy in
place now is one of the smartest things you can do.


The Statistics Are Sobering

• Only 30% of family-owned businesses survive the
transition from founder to the next generation.
• Only 10 per cent of small to medium sized businesses
have a formal plan to sell, transfer or wind down their
business in the future.
• More than half of small to medium sized businesses do
not have a succession plan at all.


The Benefits of A Succession Plan
• Helps the transition go smoothly and minimizes costs
• Sets a timetable for transfer of ownership
• Helps ensure the future financial stability and value of
your business and your retirement capital
• Reduces potential tax liabilities of transferring ownership
and maximizes tax planning opportunities before its too
late
• Helps contribute to the growth of the business and add
potential value to your net worth
• Identifies retirement income levels needed to support your
desired lifestyle
• Family, business and estate financial needs are identified
in the event of disability or premature death


Succession Plan Development
• Requires the services of professionals, typically including
tax specialists, financial advisors, legal advisors and
business advisors as well as internal stakeholders, such
as family members, key managers, employees and
successors
• In addition to tax and legal considerations, others include:
- Financing of the successor
- Division of future profits after the transition
- Identifying long-term personal and family goals
- Communicating each stakeholder’s vision for the
business
- Each individual’s role in the business after succession
- A processes for selecting and training successor(s)


Key Considerations

• When are you going to retire?
• How do you best capitalize on your capital investment?
• Who is best suited to manage the business?
• Are they capable of taking on these responsibilities?
• Do they have the personality and ability to lead the
company?
• Who will replace your role?
• Will you play any role in the business after you’ve retired?
• How will ownership be transferred?
• Will your business carry on?
• Should it be sold outright instead?


Good Communication Is Vital

• An essential part of the succession planning is the need
to openly discuss the issue of succession with family
members, key managers and employees.
• Failure to communicate is one of the biggest obstacles to
a successful succession.
• It can be a complex process and much depends on other
people, but it starts with the owner of the business.


Analyze Your Business
• One of the most important aspects of your succession
plan begins with the analysis of your business.
• If your business has prospered, you‘ll need to understand
why so that you can ensure it will continue to do so.
• If your role has been critical to that prosperity, you need to
consider how you can begin sharing your responsibilities
with others in the company.
• It is also important to plan for the possibility of death or
disability or the loss of a partner and how this might affect
the business.


The Financial Picture
• Review your company’s financial statements and evaluate
the current net worth of your company.
• This information will help set a realistic purchase price. It
will also provide critical information to your successor.
• You will most likely need a professional valuation. Taken
together with your financial statements and budget
projections, it helps provide a thorough financial picture of
your company.


Get Your Business In Order

• If your business has suffered financially, or if there is too
much debt and poor management, now is the time to
address these issues.
• Begin paying down debt. Look to replace or add staff and
take time to find the best people to fill the positions.
• Do what is necessary to optimize your company’s position
long before you retire to help ensure a successful
transition.


Succession Planning Basics

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Succession Planning Basics