Succession planning is all about finding the right strategy for selling your business or passing it onto someone else—whether it’s a family member, friend, entrepreneur, or employee.
A good succession plan:
- Ensures the transfer of your business goes off without a hitch
- Protects the businesses reputation
- Builds value; provides financial security for you, your family, and stakeholders
- Ensures you have taken advantage of all available tax deductions, credits, and exemptions.
Why Plan for Business Succession?
Most small business owners haven’t given succession planning much thought.
In fact, less than 20% of small businesses have done any succession planning. And less than 10% have prepared a formal business succession plan.
Whether you’re thinking of retiring, transferring ownership, or selling a business, there is a lot to consider, which is why you should plan for that business succession today.
When Should You Start Planning?
When it comes to succession planning, you can never be too proactive. If you expect to retire or exit the business, start planning now, since the whole process can take up to 5 years. That assumes everything goes according to plan.
What happens if you suddenly need to sell your business? It would be too late to have a built-in succession plan that helps maximize its value and insure its ready to be sold or passed on.
A business succession plan should address some the following areas:
Goals and Objectives
- Develop a long-term vision for the business
- Create a timeline to help keep the succession plan on track
- Establish your retirement and or post ownership goals
- Set milestones for achieving goals and objectives.
- Have family members help develop the business succession plan
- Choose a successor
- Develop a financial plan and figure out tax strategies for the transitions
- What are the best tax strategies if you are a sole proprietor, partner, or owner
- Does it make more sense to sell the business or transfer it to the successor
- Determine the fair market value of your business
- Set a timeline and ease your way out of the business
- Things change—review and update your succession business plan annually
The Financial, Legal, and Tax Implications of Business Succession
There are a number of financial, legal, and tax implications to consider when transferring or selling your business. Because each business and the goals of the succession plan are unique, it is imperative that small business owners look to legal and tax professionals to answer some of their questions, including:
- Will you need a loan to finance the succession plan?
- What are the tax implications if you are the sole proprietor, in a partnership, or corporation?
- Can you take advantage of the capital gains exemption?
- What can you do to minimize the tax bill?
- What about an estate freeze?
How to Prepare
Below are some business succession transition tips that can help guarantee a successful exit from the business and its continued growth.
Think about Future Business Objectives
You might be retiring but it’s still important to develop a succession plan that defines current and future business objectives.
Having clear goals—where will the business be in 5 to 10 years—can help establish a workable succession plan.
Analyze Existing Skill Sets
By its very definition, a succession plan means your business is being handed to someone else. Make sure they are set up to succeed.
Identify the core skills and experience your successor will need. On top of that, look at current employees who have the skills necessary to thrive in different positions, regardless of what their current title is.
Put a Succession Plan in Writing
It’s never too early to think about the long-term health of your company, especially when you’re no longer going to be in the picture.
Talking to partners, colleagues, and family members about your thoughts on a succession plan can help establish the ground work and spur on other ideas.
Hire an Advisor
Developing a succession plan, at least a successful, comprehensive one, requires a specific skillset.
Tax professionals can provide knowledge and expertise in areas that you may not have a lot of experience.
Not just any tax expert will do. When looking for help with succession planning, make sure you choose tax experts that have decades of experience working specifically with small businesses, farm operators, entrepreneurs, and independent contractors.
FBC, Helping Canadians with Financial and Estate Planning
Developing a succession plan is critical for increasing the value of the business you’ve worked so hard to build. It will also help minimize risk and help provide you with financial security.
FBC has 65+ years of experience helping farmers, small business owners and tradespeople develop unique succession plans that help then successfully exit their business on their own terms.
Since 1952, the tax experts at FBC have worked exclusively with small business owners, farm operators, entrepreneurs, and independent contractors. Over the years, we have helped tens of thousands of customers from coast-to-coast, with customized tax services, including succession planning, financial and estate planning, business planning, bookkeeping, and tax preparation.
At FBC, we understand that no two people have the same accounting and tax preparation needs. That’s why we’re the only firm in Canada to offer integrated tax services on a year-round Membership basis.
For more information on FBC and the services we offer, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.