Succession Planning: Kicking the ball down the road doesn’t work!

Succession Planning: Kicking the ball down the road doesn’t work!

The demographic trend in New Brunswick, and in Atlantic Canada in general is that many SME owners and founders are reaching a stage where they need to slow down, or retire, but the question is: are they prepared?

Fifteen years ago, succession planning was a hot topic, and all indicators predicted a huge number of businesses to transition hands. However, the reality is that not all of them have succeeded in doing so. I myself have acquired 9 companies in the last 10 years and have been involved as a consultant in over 40 transactions. During that process I’ve seen what works, and what doesn’t, and the common link between the companies that had executed a successful transition is preparedness, and the owner’s genuine willingness to move on.

It sounds like a no-brainer? Correct! Until you’re in the thick of it. From firsthand experience, managing employees, clients, cash, inventory, dealing with regulatory bodies …etc., it is easy for time to get away from you; and in companies that don’t have dozens of staff, often a lot of the big picture items like transition or succession planning fall through the cracks by the business owners and don’t get dealt with. The business becomes very personal to the owner, and decisions unfortunately gets tarnished with emotions and absorbed by the day-to-day stuff as opposed to being driven by the big picture goals. As a result, the process of planning – succession planning that is, can get pushed to “when we have time,” while time is running out.

Even though succession planning has been frequently associated with tax and estate planning, it is actually a more comprehensive process that starts by determining a list of answers to questions such as what do the current owners want to do? Are they planning on selling the business or passing it down to family or relatives? And for each scenario we need to figure out the impact in terms of tax planning, positioning with employees, clients, suppliers, financiers …etc.

For each case we need to figure out and plan how the business is going to be financed. What will the reality of the business owner’s future look like during the transition and after? What is the current business situation? Is it attractive for institutional investors – meaning, does it have all the bells and whistles in place such as processes and procedures, documented knowledge, map to a digitalization process…etc., or does it rely on the main owner’s knowledge? (Which is less attractive to big Corps, and to a new owner in general.)

This is a very high-level introduction to the “world” of succession planning. My biggest take away from many experiences I lived through, successful and not, is to start the process of planning as early as possible, and hire a trusted advisor with skills, perspective, and knowledge to do things right.