It can be difficult letting go. But successful business owners know that making appropriate plans to turn the company over to a successor at the right time is just prudent management.
“Some company owners only think about succession planning when they’re fed up and ready to sell,” says Chartered Accountant Paul G. Stringer, managing partner of Durward Jones Barkwell & Company LLP in Grimsby. “It takes preparation to manage a changeover properly. Start thinking about introducing a new owner at least three to five years before you intend to retire or sell.”
“A change in ownership can mean more risk for buyers,“ says Chartered Accountant Michael B. Epstein, partner, advisory services with PricewaterhouseCoopers LLP in Toronto. “Small and mid-sized companies often don’t invest enough in the infrastructure of their businesses, especially quality management. Too often from the customer’s perspective, the owner is the company.”
Epstein recommends that owners pull together a group of experienced advisors or consultants to help them plan to transition both the management and ownership of their businesses. “Create a picture of your ideal successor – a job description for a new CEO,” he advises. “It will help you focus on the actual skill set that’s needed, and open the door to outside candidates.”
Both Epstein and Stringer agree that family businesses present a special set of challenges when it comes to succession planning.
“At some stage, the heads of family-owned companies must begin to ‘professionalize’ the business,” explains Epstein. “They need to honestly discuss where family members stand with respect to business ownership succession, and what factors they’re using to decide who should take over the company.”
There are other issues. “Family-owned companies can often involve and support four or five family members and their families,” Stringer says. “It can get thorny if not everyone contributes equally, or if someone who wants the top job is performing poorly, or even damaging the business.”
From client experience, Stringer is able to comment that one of the most difficult transitions can be from father to son. “A father knows all of his son’s weaker attributes,” he explains, “and can set the bar very, very high. It’s often more difficult to let a son step in to the business than an outsider.
“Chartered Accountants must be experts in matters other than just business,” Stringer continues. “We look at the business, but also the personal, family side. We can help owners realize when it’s time to go, identify the real decision-makers and understand what the family values are. Only then can we help them decide what’s fair to people and most likely to protect the business’ value.”
“Owners can never forget that they’re in business to sell their business,” says Epstein. “The single, largest item on an owner’s personal net worth statement is their investment in shares of the private company. When you’re selling the business you’ve spent a lifetime working on, there’s a lot of money – and a lot of yourself – at stake.”
The Institute of Chartered Accountants of Ontario is the qualifying and regulatory body of Ontario’s 33,000 Chartered Accountants and 5,000 CA students. Since 1879, the Institute has protected the public interest through the CA profession’s high standards of qualification and the enforcement of its rules of professional conduct. The Institute works in partnership with the other provincial Institutes of Chartered Accountants and the Canadian Institute of Chartered Accountants to provide national standards and programs that are used as examples around the world. </em>
