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4 min read

Leaving on your own terms: What to consider for an effective business succession plan

How can business owners prepare for the inevitable transition from owner to retiree? Succession planning is a vital process to ensure smooth change over in management.

In an ideal world, every business owner will have a succession plan or exit strategy right from day one. Realistically, many business owners don’t have the answers to the fundamental questions they need to consider when it comes time to think about stepping away from their business. Will a family member take over the business? Will the business be sold? Do they even know the value of their business and how much they could realistically sell it for?

Jacqueline Knoblauch, Senior Planner with CWB Wealth Management’s Wealth Advisory Services, often works with her business clients on their succession plans. She explains that succession plans and exit strategies should start as soon as possible, with the plan revisited every year thereafter as the business evolves.

“Businesses can change significantly from year to year,” says Jacqueline, pointing out that even small changes in a business can have a big impact on the overall planning. “Examples could include a change in the business owner’s health, changes in the personal wishes of the business owner and external factors like a company being heavily leased in real estate. All those things have an impact on the ultimate decisions that need to be made regarding succession.”

Begin at the end

The best place to start a succession plan is with what the business owner wants for the business once they walk away. Whether it’s having a family member take it over, selling the business or simply shutting it down, business owners need to have the end in mind in order to start planning appropriately.

However, being open to this process to begin with can be difficult for some business owners. Determining the end goal for the business and accepting that this will need to be a plan that’s followed through on is a crucial part to ensuring a succession plan’s successful execution.
“Businesses and business owners are very intertwined, so talking to them about removing themselves from their company can be difficult,”
says Jacqueline, who explains that the lifetime of hard work and sacrifice can make it hard for business owners to place a dollar value on their company and then hand over the reins to someone else. She further adds, “The actual act of business planning doesn’t mean that you have to sell your business tomorrow. It’s just important to go through the step by step logic of what needs to be done so we don’t have surprises at the end.”

Plan before you need to

The worst-case scenario for a business owner is when there isn’t a succession plan and something happens to the owner that forces them to step back, such as a health crisis. They could quickly discover that their business might not be worth as much as they were hoping. Creating a plan and having it in place can help ensure that business owners aren’t faced with tough decisions that could put a damper on their hopes and dreams for retirement.

Jacqueline notes that business owners should ideally speak with an advisor at least three years before the date when they want to actually sell their business, as corporate structure needs to be taken into consideration. There are tax planning situations that require at least two years to be effective. So taking into account potential tax liabilities can help ensure that everyone who may hold a share in the business can use the capital gains exemption on their taxes, ultimately saving them hundreds of thousands of dollars.

“The most important thing is to create a reasonable timeline and make sure the business owner is open to changes if necessary to set up the business in the most ideal fashion for sale or transition,” says Jacqueline. 

Ask the hard questions

Talking with someone from CWB Wealth Management’s Wealth Advisory Services team can help provide some clarity. Asking questions and posing scenarios that a business owner may never have considered before is something Jacqueline always makes a point in doing when she’s meeting with them about business succession.

Being aware of personal finances is one area that Jacqueline always highlights.
“It’s not uncommon to find clients with very detailed knowledge of their balance sheet but then you ask them about their TFSA and they either don’t have one or they don’t know its balance,” says Jacqueline. 

Working with the right team

One difficulty that can arise when working with a team of advisors is if the advisors aren’t communicating with each other and the business owner is left to try and decipher detailed information from different advisors. Jacqueline points out how the CWB Wealth team will work together with existing advisors, to help create a comprehensive plan that’s spearheaded by a single planner.

Helping to bring confidence and clarity, CWB Wealth Management’s Senior Planners are able to outline all the variables that a business owner needs to think about in order to see their business continue to flourish after its transition.

“The best-case scenario is that the business owner has had proper protection measures in place so their business continues to run in the way they want after they retire,” Jacqueline concludes. “Knowing what needs to happen in advance, they’ve made the improvements to make sure that the business has a higher chance of success. This can include nurturing relationship building between clients and subsequent managers for transferring goodwill from the original owner, as well as setting employees up for being taken care of and retained over a period of time once the owner has stepped away. ”

Get in touch with one of CWB Wealth Management’s Seniors Planners today to find out how we can help ensure your business has the right succession plan in place for the next phase of your life. You can reach us at [email protected] to help get you on the right path.