Succession planning

Find the right strategy for selling your business or handing it over to someone else, whether it be an employee, a family member, a friend or another entrepreneur.

Table of Contents

    Why plan for business succession?

    A good succession plan will help the transfer of your business go smoothly, and allow you to maintain good relationships with employees and business partners. Succession planning helps you:

    • Protect the legacy of your business
    • Maintain a service for your community
    • Build value for your business
    • Provide financial security for your family and your stakeholders
    • Deal with unexpected events (illness, accident or death)
    • Prepare for the future
    • Business transition planning
      Whether transferring ownership or selling your business, you will have decisions to make; plan for the transition today.

    When do you start planning, and how?

    Start planning early if you intend to retire or exit from your business as the process could take up to five years.

    A business succession plan can help you make important decisions about ownership, maximizing your company's value and tax strategies. A plan should touch on some of the following areas:

    • Goals and objectives
      • Develop a vision for the business.
      • Determine your retirement or post business ownership goals.
    • Decision making
      • If appropriate, involve family members in the development of the plan.
      • Have a conflict resolution mechanism — a pre-established plan to resolve any conflicts between family members, partners and/or employees.
      • Select a successor.
    • Training
      • Identify the core skills and competencies that your successor will need.
      • Plan for training of the new owner(s).
    • Estate planning
      • Prepare a financial plan and determine the tax implications of the transition of your business.
    • Contingency planning
      • Have a contingency plan that includes the financial resources required to ensure the survival of your business in case of illness, accidents and even death.
    • Corporate structure and transfer methods
      • Determine your options as a sole proprietor, partner or owner of a corporation.
      • Decide whether you wish to transfer or sell the business to your successor.
    • Business valuation
      • Find out the fair market value of your business.
    • Exit strategy
      • Establish a timeline for easing your way out of the business.
    • Implementation and follow up
      • Review and update your plan regularly.

    It is a good idea to contact key advisors such as accountants, bankers and lawyers when developing your succession plan. Communication with your successor(s) is important in order for them to understand their roles in the business and to allow them to collaborate with you throughout the transition process.

    What are your options?

    It is important to look for an exit strategy that fits both your personal and business objectives. Some of the options to consider when planning for your business succession are:

    • Transfer to a family member
      • Identify the candidate(s) and discuss the plan; make arrangements for the transfer or sale of your business to your relative.
    • Sell to a partner, management team or employees
      • Sell the business to current employees who know the business and are interested in seeing it continue.
    • Sell to a third party
      • Find a buyer and finalize the sale.
    • Selling a business
      When you are selling your business, or part of a business, the CRA can answer your questions on subjects such as business number, payroll and GST/HST.
    • Management buyout: A common exit strategy when selling a business
      Learn more about management buyout, which consists of the management team pooling resources to purchase all or part of the business that they manage.
    • Business succession (BMO)
      Follow this guide to help you navigate the complexities of succession planning for your business. Get help setting objectives, developing a strategy, and implementing your plan.
    • Plan your succession
      Access information about succession planning including some of the options available to you when it's time to hand your business over to somebody else.

    Seeking professional services

    The use of professional services is essential to the success of a small business, including its transfer to another owner. Professionals can provide knowledge and expertise in areas where you may have little experience. They can also round out your management team to ensure that your business is operating efficiently.

    As an entrepreneur, there are four types of professionals you may wish to consult:

    • Accountant
    • Lawyer
    • Banker
    • Insurance broker

    When seeking out professional help, choose carefully. Find someone with whom you feel you can establish a good working relationship. For first time meetings, be prepared to explain your situation and what you are looking for. Ask what services the firm provides and how it can assist you. Do not forget to ask how much the firm charges for its services.

    What is the value of your business?

    Before you sell or exit your business, you will need to evaluate your business revenues, assets, property, etc. A number of other factors will need to be assessed like future potential profit, competitors, intellectual property, and customer base. Buyers will be interested in your business figures and history. A business valuator can help you in determining the value of your business.

    What are the financial, legal and tax implications of business succession?

    There are many financial, legal and tax implications when transferring or selling your business. Each business and business owner has their own unique situation and seeking advice from a tax professional could help answer some of these following questions:

    • Do you require a loan to finance your transaction?
    • What are the implications if your business is a sole proprietorship, partnership or a corporation?
    • Are you eligible for the capital gains exemption?
    • How do you minimize your tax bill?
    • Can you take advantage of an estate freeze? (Freezing the value of the shares you own and issuing common shares to adult children who will be carrying on the business)
    • Closing accounts
      When closing your business, remember to complete the required Canada Revenue Agency forms.
    • Corporations Canada: Dissolving a corporation
      Learn the steps you must take and get the forms you need to obtain approval for the legal termination of your corporation under the Canada Business Corporations Act.
    • Selling a business
      When you are selling your business, or part of a business, the CRA can answer your questions on subjects such as business number, payroll and GST/HST.
    • Start, dissolve and change a corporation
      Only Applies to : Ontario
      Learn about the requirements for starting a corporation, including a not-for-profit, and how you can make changes to your current business.

    How do you prepare for transition?

    • Establish clear but flexible timelines to help keep you on track.
    • Set milestones for achieving goals and objectives.
    • Keep the succession plan up to date to reflect any changes or decisions.
    • Review and modify your plan at least once a year as things can change quickly in the business world.
    • Prepare a communication plan for notifying your successor, employees, suppliers and customers of your succession plans.
    • Seek professional advice.

    Additional resources on succession planning

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