How to Sell or Exit My Business: How Important is a Succession Plan When Selling a Business?
Sometimes when the future is bright, it can be challenging to look directly ahead. It is common to delay succession planning and put the process off to another day, however this can leave your business vulnerable. Failing to create a functional succession plan impacts the overall value of a business, as well as increasing risks, causing tension among management teams and jeopardizing the company as a whole.
A well developed succession plan creates a smooth transition of ownership while easing the concerns of staff, vendors and stakeholders. Planning also grants owners flexibility in their timeframes and the ability to wait for the right buyers and the best terms of sale.
What is Succession Planning for Businesses?
At its core, succession planning is a strategy to pass the business from one owner to another. This will include an exit strategy for current owners, as well as training and planning to ensure a smooth transition. This process may appear to be simple; however, business succession is an incredibly complex process.
Nearly 70% of Canadian businesses do not have a formal succession plan in place. It can be easy to assume that you will be passing the business to your children, a family member, a valued employee or member of the management team. While this is a nice idea, this is not always the case for various reasons.
For anyone looking to sell their business, a proper succession is an investment. Having a plan for the future creates a more robust profile, making your business more attractive to potential buyers.
Succession Planning: Appealing to Potential Buyers
When selling a business, the overall business profile is based on smooth operations. Failing to create a succession plan can be a red flag to potential buyers. Planning for the future before listing your business signals to potential buyers that operations will continue to run smoothly.
One of the primary concerns for prospective buyers is the potential for adverse effects to staffing, vendor contracts and ultimately cash flow. The goal is to ensure that the business continues to maintain its market share, continues to grow and shows stable revenue, even while ownership changes hands.
When selling a business to a family member, there may be a sense of security that there will be ongoing support and stability. For buyers reviewing potential acquisitions, there needs to be plans in place to make sure that the vendor partnerships, management teams, technology and systems that have made your business successful will stay in place. Reducing risk and securing a smooth transition can help business owners boost their company profile, appealing to a wider number of buyers.
The Succession Planning Process: How a Business Broker Can Help
Selling a business is a long process involving many key players. Working with an experienced business broker means access to a network of qualified professionals that can help navigate the legal and financial frameworks of selling your business.
Every year, owners looking to sell their businesses are shocked by the high cost of the tax on the sale of their companies. When passing ownership from one family member to another, an experienced accountant can navigate the lifetime capital gains exemption, but selling to an interested third party can come with unexpected costs. A succession plan should be a detailed strategy that requires time and expertise to develop and involves a small team of experts. Luckily, a business broker will provide referrals to local professionals.
Business brokers are also able to help negotiate the terms of sale, which goes beyond the final sale price. Many business owners choose to break the succession process down into multiple stages, gradually passing ownership over and providing additional training or insight to buyers.
The selection process for your successor is incredibly important. Whether it’s a family member, an employee, or a third-party, selecting the right individual is crucial to the longevity of the business. Brokers specialize in connecting sellers with a network of vetted buyers, as well as industry professionals.
