Strategy Up


My Business, My Baby: Steps For Succession Planning

No one knows my business better than I do! I built this business from scratch, who are you to tell me what to do?! How to resolve your small business problems?

However, sometimes it is time to start thinking to let go the reins of our own business. We did great, we brought the business to this level. We deserve a rest, we deserve to retire and keep on watching how our business will grow without us. Are we ready for this crucial decision-making moment?

Emotionally, succession planning is our worst enemy but practically it could be our best friend, should we want to see our business flourish without our involvement.

Steps for succession planning

A research (source unknown) says that only 54% of Boards of Directors were grooming a specific successor and 39% had no viable internal candidates who could immediately replace the CEO if the need arose.

On average one over two businesses have either no or poor succession planning practice. We’d better make sure that our business is not part of the statistics. Succession planning is about classifying business-critical roles that if remained vacant for a long period could impact the business’ performance.

According to the BDC, a good practice is to have an informal Advisory Board to support the decision makers.

Only 6% of Canadian entrepreneurs have an advisory board for their business. However, 86% of entrepreneurs who have an advisory board say it’s had a significant impact on their business. (2014, BDC)

The benefits and attributes of an advisory board could be summarized as follows:

Benefits of Advisory Boards

Many families could be very hesitant be to acknowledge the need for transition planning and on sharing the outcome of such planning with the right stakeholders. If the succession planning exercise is done properly, we will provide high chances for our business to remain sustainable well beyond the leadership transition.

Family business doesn’t come without its own particular challenges. This definitely doesn’t make it easier for the entrepreneurs we are, however there are ways to mitigate and reduce the risks significantly. Small business problems are unique but not very different in nature.

The key issues which family businesses, let’s talk about the elephant in the room:

* Financial returns: What is the value of the company? Should we look at the Balance Sheet or at the Earning Capitalization Model?

* Family Interests… Are we all on the same page: Retirement income is the objective on the horizon. How to align the interests of all stakeholders, current business leaders vs. the potential new comers

* Time for the next generation: Not all businesses succeed at passing the flame to the next generation. On average around 35% of family owned businesses succeed.

* Disputes within the family: My interest is different than yours. It could arise from a simple dispute, a divorce, voting rights of non-executive members, death.

* Inheritance and Estate complexity: First thing that comes to mind is Tax!

A big weight on our shoulders! To avoid such complications, planning would become a crucial component of the business. The earlier the better! This might not solve all your small business problems, yet…

1- Fix Goals and Objectives: A strategic planning exercise is a must for family owned and small businesses

2- Corporate Governance: Set a clear decision-making process. Define triggers and communication processes

3- Write a succession plan: the best way time to do it, is when there is no conflict yet.

4- Define a handover plan: Let it be clear with timelines, action items, financing options etc.

5- Business and Estate Planning: Get advice from a professional tax adviser. Have a business adviser on your side to help you build the strategy going forward.

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