What is business succession planning?

Business succession planning means taking steps to hand over your business when you are ready to retire, sell or move on to another business. It's dismaying to realize how many business owners haven't made any plans of this kind. It's not that they don't know the importance of this kind of planning, because most do. There are plenty of reasons why business owners don't plan, including:
- believing they are too young to start succession planning
- being too busy running and growing the business to think about leaving it
- loving their work and not wanting to stop working
- not knowing where to start planning
- not knowing what options are available
- not having a clear idea about who should take over for them
- not really understanding what their own financial situation will be once the business is gone
- problems with getting financing for their successor

Failing to plan to exit your business one day can lead to real problems. It could mean that a business you've spent many years and many dollars building could be sold at a fire sale price and that one of your children might lose out on the chance to carry on your business. It could mean less money for you to retire on than you really need or want, or paying a great deal more in taxes than you needed to pay.

Most business owners who are committed to succession planning will consult professional advisors including lawyers, accountants, financial advisors, insurance representatives and bankers during the planning process, but the majority of business owners don't even get that far.

An aspect of business succession planning that is easily overlooked but that is absolutely crucial for the business owner is making a Will, Enduring Power of Attorney and Personal Directive. These documents are your back-up plan in case you don't get around to finishing (or maybe even starting) your succession planning before you pass away or lose mental capacity.

Think about a 40-year-old owner of a successful business. He hasn't put any succession planning into place because he doesn't plan to retire for another 25 years. He hasn't done a Will or Enduring Power of Attorney because, again, he believes he is too young to need them yet. He is in a car accident that leaves him in a coma. He is the only person at his business who has legal authority to sign paycheques, accept new major contracts for business and make the final decision about the purchase of new equipment. What happens to his business if he has not left anyone with legal authority to run things while he is out of commission? How can the business carry on without any new work contracts being accepted and the employees not being paid? Who will be in charge? How long can it survive this way? What if he is in a coma for six months or a year? These problems would not have arisen had the business owner put an Enduring Power of Attorney in place before his accident.

When thinking about your own business succession planning, make sure that your lawyer prepares a suitable Will and an Enduring Power of Attorney that both appoint people specifically to deal with your business.

My upcoming book, "Succession Planning Kit for Canadian Business", goes into great detail about what options are available to business owners, who to choose for a successor, how to prepare a successor to take over, financing options, tax issues, family dynamics and more. This is a really good place to start your own planning by learning about the process and the options. If you are planning to use professional advisors, you will find this book gives a lot of information that will enhance what your advisors are telling you and add depth of knowledge you can use. It will be available in stores and online in fall, 2009.