The Value of Succession Planning

"The value of business succession planning cannot be underestimated given that about one trillion dollars of business assets could be transferred to the next generation in the next decade." [1]

In November 2012, the CFIB released the results of a study on business succession planning that was conducted over the period from March 9 to May 4, 2011.  Over 8,300 Canadian business owners responded to the study. Some of the highlights are as follows:

1. Business succession planning is a long-term process and not a one-time event requiring high investment on behalf of the business owner.
   
2. 51% of business owners do not have a business succession plan (formal or informal).
   
3. 51% of business owners started their business from scratch (as opposed to acquiring the business). As a result, many may not see the value of succession planning since they did not take part in the past.
   
4. Close to 50% of business owners plan on exiting their business in the next five years with more than 75% planning to exit within the next 10 years.
   
5. Nearly 50% of business owners plan on selling the business to a third party with over 33% planning to sell or transfer the business to a family member.
   
6. The top 4 barriers to completing a business succession plan include:
a)  Finding a buyer/suitable successor;
b)  Valuing the business;
c)  Financing for the successor; and
d)  The business being too heavily dependent on the owner's active involvement.

7. The top 4 reasons for not having a business succession plan include:
a)  Too early to plan;
b)  No time to deal with the issue;
c)  Can't find adequate advice/tools to start; and
d)  It is too complex.

Being able to measure the value of the business is a critical aspect of the business succession plan.  Any disconnect between the expected value of the business and the actual valuation will make exiting the business extremely difficult.

In conclusion, the CFIB advises that a well designed succession plan will help ensure the future stability and value of the business and ultimately a smooth transition for the business and business owner.

For those business owners that recognize the importance of beginning the exit planning process early, especially in light of the expected increase in the supply of businesses that will be for sale over the coming decade, but have no time to deal with the issue, can't find adequate advice and think it is too complex, let the trained professionals at VSP assist you through the process (www.vspltd.ca).

  
Posted by Jason Kwiatkowski 

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1.  Canadian Federation of Independent Businesses (CFIB) Research – Survey Results on Small Business Succession Planning, November 2012. 
http://www.cfib-fcei.ca/cfib-documents/rr3277.pdf