Business Succession Planning

Smythe has the expertise to help business owners navigate the complex process of planning for their eventual business exit, whether that includes transitioning ownership to the next generation, employees or a sale to another party.

Having a thoughtful business succession plan ensures that you are putting yourself in the best position to realize value and achieve your objectives, while also protecting your business from unexpected life events.

Protecting Your Nest Egg

Many business owners dedicate countless hours and energy towards strategizing, tweaking and improving every aspect of their day-to-day business. However, less than half of small to medium sized business owners have even thought about having a business succession plan.
With most of your net worth tied up in your business, being thoughtful on this matter is critical to protecting the value you have created over a lifetime’s worth of work and sacrifice. Often, far too much value is diminished or left on the table when business owners fail to plan for their exit.

Developing a Plan

What does a “succession plan” even mean? the following elements are critical:

  1. Understand your time horizon – in the ideal scenario, when do you want to completely retire or move on from your business? This is a personal decision as everyone’s goals and circumstances differ. If your exit is through a sale to a third party, it will typically take a minimum of three years from the time you first start talking to a purchaser to being fully retired. Even if you’re 10+ years away, it’s never too early to give this some serious thought so that you can start paving the way for a successful outcome.
  2. Type of exit – do you want to transition ownership to your children/family, employees, or explore selling your business in the open market? Are your children interested in taking over the business? Open communication with your family about everyone’s goals and objectives is important to ensure that the options you’re considering have merit. Knowing the type of exit will also help you prepare for the complex and onerous process of exiting your business.
  3. Financial needs – what are your lifestyle and financial goals in retirement? Understanding what your annual cash flow needs might be, including unexpected expenditures is critical to any succession plan. Working with a trusted advisor can help answer the question “how much money do I need in retirement?”.
  4. Valuation – what is your business worth? Is this, in combination with any other investments, enough value for you to fund your retirement? Starting your planning early will ensure there is time to improve your business’ value to fund your retirement.
  5. Valuation enhancement – a critical component of your succession plan is taking steps to maximize the value you will receive on exit. While you’ve spent your career building the business for your own vision, the value you receive will be based on your successor’s perception. Your successor needs to perceive that they can successfully carry on the business once you have exited. Preparing for succession will include de-risking your business to ensure that your business can operate in your absence. This will not only enhance your business value, but also protect your business interests if you were to have an unexpected life altering event. This may include upskilling high potential members of your team, hiring additional management, diversifying key customer or supplier relationships, and advancing growth initiatives.
  6. Tax planning – there are several tax planning opportunities that need to be set into motion a few years prior to moving forward with an ownership transition. It’s important to discuss these matters with your tax advisor well in advance to maximize your after-tax wealth.

Business owners will typically go through only one exit in their lifetime, and although they are experts in running their businesses, they’re often unfamiliar with what it takes to optimize a successful exit. Therefore, it’s important to work with a team of trusted advisors to help navigate a complex process and prepare for a successful outcome.