Succeeding at Succession Planning—Get Started Today to Prevent Headaches Tomorrow
By Michael Stubbing, CA, CFP, TEP
"Sooner rather than later." It's a commonly used phrased that is especially apt when talking about succession planning. Building a business from the ground up—or even running a successful business day to day—requires a lot of planning. All too often, the day-to-day running of the business takes precedence over succession planning. In fact, recent research has found that 30% of Canadian private businesses don't even have a business plan, and only 40% of Canadian private companies have a clear succession plan.
Obstacles to succession planning
Why do so many business owners put off succession planning until the last minute? Obviously, there are complex business matters to settle, like taxes and valuations, but our experience has shown us that there can also be a myriad of personal obstacles—the "soft" side of succession—getting in the way.
Nothing throws a wrench into the succession planning process like conflict. Whether business owners are facing a simple misunderstanding among a few stakeholders or dealing with deep-rooted family problems, one thing is certain: If they want their company to succeed after they're gone, it's important to get past these interpersonal conflicts. If it seems impossible to do it on their own, bringing in an outside expert to help create a clear succession and estate plan can aid business owners in resolving conflict between family and other key stakeholders. Sometimes a fresh set of eyes—along with experience and know-how—is just what the doctor ordered.
No question—this is an extremely emotional time for business owners. The concept of letting go is difficult for many, but the torch must be passed at some point. By focusing on the future of the company and allowing the business owner time to get used to (and maybe even excited about) the idea of retirement, planning for succession will likely have an enhanced probability of success.
Without a set plan, succession can be difficult. That's why it's imperative that business owners do what they say they're going to do. If it's communicated that the business will be handed over immediately, the owner shouldn't create confusion by continuing to act as though they're still in the same leadership role. This may confuse the family, stakeholders and employees, and put the successor in an awkward position.
Fear of not being heard, fear of wishes not being carried out, fear of making the wrong choice, and fear that there will be hurt feelings—these are just some of the reasons why it may be difficult for a business owner to start the planning process and talk about it with family members and stakeholders. While fear is a natural instinct, it's important to put this emotion aside and focus on making the transition as smooth and clear as possible. By starting the process early enough, there should be sufficient time to confidently choose an appropriate successor, convey the vision for the company clearly, and smooth over any potentially hurt feelings.
The last word
Preparing for the day when a business owner hands over their "baby" to someone else can be difficult. Getting the ball rolling early and seeking experienced professionals to provide guidance enables business owners, as well as their family members, stakeholders and successors, to look toward the future with a sense of optimism.
Michael Stubbing, CA, CFP, TEP, is a partner in Grant Thornton's Tax Services. He is based in Victoria, BC. For more free information on succession planning, visit www.grantthornton.ca/resources/insights/reports/Private_Company_Sucession_Planning_Where_do_you_stand_2011.pdf.
Succession planning resources
Succession Planning from a Legal Perspective (webinar) - highlights considerations and pitfalls related to shareholder agreements, due diligence, purchase and sale agreements, trusts, wills, power of attorney, and domestic contracts. Available for free at: www.snwebcastcenter.com/event/?event_id=804.
20 Questions Directors Should Ask about CEO Succession (booklet) - designed to help directors identify best practices in CEO succession planning, better prepare themselves to participate in CEO selection decisions, and work through sudden or unplanned CEO transitions. Available for free at: www.rogb.ca/director-series/20-question-series/item12320.pdf.
Succession Planning Toolkit for Business Owners - designed to help business owners put their succession plans into action. Available for purchase at: www.castore.ca/product/succession-planning-toolkit-for-business-owners/621?urlcode=businessowners1&newlang=en.