Business owners ignoring succession planning

Much to their own peril, Canadian business owners are not preparing for the future.

According to CIBC, small and medium-sized business owners are putting the financial health of their companies and their personal net worth at risk by ignoring the need for a succession plan.

With their average age being 60 and with approximately two-thirds of Canadians who work in the private sector employed by small and medium-sized companies, laying the groundwork for succession was never more important.

“For many years now it’s been common knowledge that a majority of small business owners are not planning for the succession of their business,” said Sean Foran, CIBC’s head of Business Transition Planning. “The reluctance to let go often stems from the fact they lack a framework to approach this potentially emotional decision around what’s next for them and the companies they built.”

“As small and medium-sized businesses represent some $600 billion of Canadian GDP, understanding these critical success factors and a framework for deciding on the appropriate exit strategy are key to ensuring stable transitions both for small and medium-sized businesses and the economy as a whole,” added Foran.

Foran offers the following four points for business owners to consider:

The future leadership needs of the business

There are essentially three forces at play in Business Transition Planning – the family involvement in the transition, the desires of the shareholders around successor ownership and leadership, and the needs of the business itself. Asking what the business itself needs from a new leader can provide the objective criteria for the selection of a successor or best exit strategy for the owner of the business.

Identify a capable successor, prepare them to take over

The research on family businesses tells us that in order to truly let go, a business owner must put trust in a willing and able successor. Successors don’t become willing and able overnight. They need adequate preparation and need to see that the owner will begin to let go of increasingly important decisions. That’s a key driver of successful succession. Ask your successor if he or she feels prepared to take over your role. You may be surprised at the answer.

Beware the competitive landscape

Business owners should regularly analyze their business to determine its place in the competitive landscape. Knowing where the business sits and how well resourced it is in terms of the financial and managerial resources of the business and the emotional resources of the business owner are critical factors in deciding whether to keep or sell the business.

Emotional resources reflect the commitment of the owner and family to continue to invest or re-invest in the business after the owner is no longer actively running the company.

If you are not confident about your emotional, financial and managerial resources to keep the business in the family, maybe it’s time to let someone else take the business to the next level.

Leave at the top of your game

Many business owners leave their succession and transition planning too late, curtailing their exit options. Investing in strong tier-two management is really an investment and not an expense. Teaching others to do what the owner has historically contributed to the business is an investment in the owner’s future freedom and is a critical success factor in a successful transition whether the business is to transition to a successor within the family or to a third party.

John Powell

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