TORONTO, Oct. 15, 2015 /CNW/ - Canadian small and medium-sized business owners are putting their companies at risk by not having a succession plan in place, with nearly three-quarters of family-owned businesses failing after just one generation, says Sean Foran, Managing Director, Business Transition Planning, Wealth Advisory Services, at CIBC (TSX: CM) (NYSE: CM).
"Some 70 per cent of family-owned businesses fail to make it beyond the first generation simply due to the owners' lack of preparation and communication with their children," says Mr. Foran. "In order for the next generation of owners and managers to succeed, a well-thought-out succession plan is crucial, and acts as a roadmap for the successful transition of your business."
Small and medium-sized businesses are the backbone of Canada's economy. Yet, the vast majority of business owners (80 per cent) who say they have a succession plan admitted in a CIBC poll earlier this year that their plans were, at best, informal, back-of-the-cocktail napkin ideas even though they are counting on selling the business to fund their retirement.
"Business owners invest a lot of time and energy into making their business a success, but when it comes to transitioning the business, they lack a clearly-defined exit strategy," says Mr. Foran.
He recommends that the succession plan be in place at least one-to-three years before the owner decides to retire or sell. "The key mistake in succession planning is not starting early enough and failing to assemble a team of experts such as lawyers, accountants, and merger and acquisition advisors," warns Mr. Foran.
Risk of reduced retirement savings, family conflict
Without proper planning, business owners might not be able to realize the full value for their business and could face a hefty tax-bill, reducing the retirement savings they had hoped for from the proceeds of the sale.
"We see it all the time, where a business owner fields an unexpected offer and misses out on the opportunity of selling the business for top dollar just because he or she isn't prepared," says Mr. Foran.
Conflict within families is also common when the next generation is not involved in the transition planning, or plans to change the strategic direction of the business.
"Many times we see conflict among family members who have a different management style or ideas on how the business should be structured", says Mr. Foran. "And sometimes, the next generation just does not want to take over responsibility for the business. This could have a significant impact on the business owners' transition plans."
Advice on building a successful succession plan
Mr. Foran offers advice for business owners to consider in a succession plan:
- Define the short and long term objectives of all stakeholders - family, employees, business partners and shareholders - in your plan so you can objectively consider succession.
- Understand where the business sits in the competitive landscape and what resources it needs to survive and grow. These could be financial or managerial resources.
- Consider the future leadership needs of your business and adequately prepare a willing and capable successor. This could be a member of your family, a business partner or a third party.
- Update the succession plan as your business grows and changes to reflect both your personal and business objectives.
- Assess your lifestyle and income requirements in retirement. The transfer of your business should be reflected in your overall tax and estate planning.
SOURCE Canadian Imperial Bank of Commerce
If you are part of a family business and would appreciate some help building a succession plan, call Four Points Financial Solutions at 1-866-235-0004.
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