Creating a will—while important for any client—is particularly critical for business owners.
And more than one-third of Canadian small business owners are actively putting a succession plan in place, says a BMO study released today, which is a significant increase from the 15% who reported having a plan in 2010.
This does, however, leave over half (58%) with no plan at all. The reason: many believe it’s too early (36%).
As an advisor, you need to help these clients understand the significance of a well-thought out plan. Whoever they choose to take over must be responsible and willing to act in the best interests of the business.
The successor also has to be prepared to take action should the owner die suddenly or suffer serious injuries preventing them from returning to work.
“Just like creating a business plan or buying insurance, implementing a succession plan well in advance of your projected retirement can guarantee a smooth transition process once it’s time to execute it,” says James Wong, vice president of succession planning for BMO Financial Group.
He adds, “Creating a succession plan can also help realize the maximum potential value of a business, while mitigating risks associated with economic uncertainty or a sudden shift in management.”
“It is never too early to start thinking about implementing a succession plan,” says Cathy Pin, vice president, commercial banking, BMO Bank of Montreal.
She adds, “Many Canadian business owners are set to retire in the next decade, so planning for succession should be a priority for every business.
- Only half of businesses with 10 employees or more have a plan in place; two-thirds of business with less report they don’t have a plan
- One-third (36%) of Canadian small business owners want to keep their businesses in the family
- More than one-quarter (26%) would select an outside source to buy out their business
Tips for owners and their advisors:
Get a head start: Many owners assume the demand for their business will be there once they are ready to make the move, but this isn’t usually the case. Succession planning should begin at least 10 years in advance to realize the full potential value of the business and ensure a smooth transition.
Four questions: Each business is unique, so help your clients develop tailored solutions with these questions:
- Who should succeed you in your role?
- Would you rather dissolve to a partner or sell?
- When would be the ideal time to begin the transition?
- How should the transition be structured?