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Succession in businesses may be one of the most important challenges facing Canada today, experts say. A recent survey by the Canadian Federation of Independent Business found that 71% of owner/operators said they wanted to retire within 10 years. About 41% set five years as their goal.
Astonishingly, however, only 7% of them have concrete, written succession plans and 28% have made informal arrangements. Close to 65% of those business owners had no idea how they would retire or how they would transfer their business to new owners. These statistics are cause for concern say many experts.
Choosing how to pass on the torch is one of the most important decisions an entrepreneur will make says Edmée Métivier, BDC's Executive Vice-President, Financing and Consulting. "Making the right choice and planning properly will help ensure the long-term viability of the business and protect the entrepreneur's main retirement asset."
Handing the reins over to a family member is just one of several options. One of the most obvious advantages of opting for a family transfer is that the entrepreneur's family will benefit from the legacy left behind. As well, family members who are already involved in the business may require less coaching.
The purchase of all or a significant part of the business by its management team is another possible exit strategy. There are several advantages here for entrepreneurs: a management buyout can ensure uninterrupted continuity when the businesses is handed over; the new management team has invaluable experience, and; the company is more likely to keep its existing clients and business partners.
Selling a business to outside interests is another increasingly popular exit strategy. That sale can take place all at once or in stages with the founder staying on in a management role and the eventual price paid dependent on continuing performance.
"On the most basic level, you can keep it, sell it or close it," says David Pamenter, a partner at Gowling Lafleur Henderson LLP. "There are situations where any of these may be the best course. What ties them all together, however, is the need to do the advance planning and to bring the business to the stage where the course chosen maximizes its value."
In the case of Brian Toner, founder of Timber Top Trusses Ltd, a company based in Grand Falls, N.B., a family transfer was the best course of action. While it was not without emotion and sleepless nights, Brian successfully transferred control of the company he started to his youngest son Steve, then 23.
The result has been an astounding success. Sales have grown 40% since Steve took over, streamlined, updated and found new markets. "We cared enough about the business as an ongoing, growing entity to take the time to both plan and implement a succession plan," says Steve. "Succession was all about growth," he concludes.
Ms. Métivier agrees. "There is a range of solutions for succession and all options should be carefully assessed as part of the plan for the business' future growth," she says. "The essential question here is of legacy. What do entrepreneurs want to leave behind? What should they do to preserve their legacy?"
But answering all these questions is not done overnight. Timber Top Trusses owner Steve Toner is familiar with the process. "Planning ahead remains the best piece of succession advice out there."
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