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Business Succession Planning

business owner succession planning

Many business owners intend to sell or transfer their company before they retire. Some plan for a family succession, while others will sell the business's assets and wind down operations. We can help you prepare early for your exit by developing a strategy tailored to your desired outcome.

“Nearly 30% of all the small and medium-sized businesses in Canada – will be selling or transferring control of their companies within the next five years. By 2022, those numbers are expected to reach 550,000 owners with $3.7 trillion in assets.” (CIBC World Markets)

Three Common Business Succession Planning Strategies

Transfer your company to a successor of your choice

When choosing a successor, you might consider grooming family members or managers in your company. This can reduce third-party involvement and give you the ability to maintain some involvement and influence in the business. However, it can be difficult to identify and train the right successor. The first step is to establish an ideal profile for your successor and then identify candidates who fit that profile.

A buyout of the company by management or employees

A management buyout (MBO) is a good option for owners who want to ensure that their business will continue to be run on the same principles that made it successful.

The advantages of selling to a management buyout are that there is generally little due diligence, rewards for existing management for their long-term support of the business, and it can protect legacy and business independence. The disadvantage is that management often has limited access to capital and this could affect the price and the terms. It is likely that vendor take back will be necessary. A failed attempt at purchasing a company can affect business morale and performance.

Selling the business to a third party

Business owners who are looking to sell their small business have several options:

  • IPO—The launch of a company's stock onto a public exchange, giving investors access to shares in private companies.
  • Private equity—The sale and/or issuance of shares to an individual with significant financial capital.
  • The sale and/or issuance of shares to another operating company is a good option for shareholders looking for a clean exit and the highest possible value.

Make sure your choice of transition is aligned with your chosen retirement lifestyle. And remember to start planning early, at least two years before your planned exit.