Succession planning is an important part of the vision you have for your company’s future. But what if you have no family members to succeed you? Here are five tips on non-family succession planning from Chartered Accountant David Townley, a partner with WFT Corporate Finance & Valuations Ltd. in Toronto.
1. Start early – “Succession planning is the process of determining and implementing the detailed actions required to transfer management responsibility and legal ownership of your business,” explains Townley. “Early planning will maximize the price you obtain for the sale of your business.” Starting early also gives you more time to examine all your options, including selling the business to a current employee or selling to an outside party. “It also permits the business’s financial situation to be optimal and stable when the actual sale process begins,” adds Townley. “The succession planning time frame can range from five to 20 years.”
2. Set objectives – “You need to understand your personal and retirement goals and how you will generate an income stream in retirement,” says Townley. “What kind of retirement do you want to have and what kind of capital base do you need to sustain that?” You may also want to put an alternative succession plan in place that would take effect in the event of your unexpected death or serious disability.
3. Do your homework – “Evaluate the economic environment and analyze the strengths and weaknesses of your business, as well as opportunities and threats facing it,” suggests Townley. “Once you have done this, identify the critical factors required for your business to succeed. This will help you identify prospective purchasers.”
4. Establish a transition period – “The length of the transition period will depend on the wishes of the buyer and the length of time they believe your involvement is required,” says Townley. “A transition of one to three years is typical.”
5. Talk to a Chartered Accountant – “CAs have the professional training to address both financial and non-financial issues,” explains Townley. “This is very helpful to business owners who are developing a succession plan that does not involve family.”
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