Succession planning
Find the right strategy for handing over or selling your business to someone else, whether it be employee, family member, friend or another entrepreneur.
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Why plan for business succession?
A good succession plan will help make 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 - The Entrepreneur’s Guide
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:
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Goals and objectives
- Develop a vision for the business.
- Determine your retirement or post business ownership goals.
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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.
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Training
- Identify the core skills and competencies that your successor will need.
- Plan for training of the new owner(s).
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Estate planning
- Prepare a financial plan and determine the tax implications of the transition of your business.
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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.
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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.
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Business valuation
- Find out the fair market value of your business.
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Exit strategy
- Establish a timeline for easing your way out of the business.
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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 that they understand their roles in the business and collaborate in 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:
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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.
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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.
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Sell to a third party
- Find a buyer and finalize the sale.
- Transition planning: what you need to know
Know the options available to you when it's time to hand your business over to somebody else.
- The Transition Experience: What every Canadian business owner should know
Whether you are selling your business, transferring it to family members or closing it, you can get answers to your succession questions in this guide.
- A common exit strategy (management buyout)
Learn more about management buyout, which consists of the management team pooling resources to purchase all or part of the business that they manage.
- Selling a business
When selling your business or even part of your business, the Canada Revenue Agency can answer your questions on subjects such as business number, payroll and GST/HST.
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.
- Put a price tag on your business: A guide to business valuation
Before you approach potential investors or buyers, you need to assess the value of your business. Learn about the different ways to calculate this value.
- What's your business worth?
Learn how to determine the value of your business and find ways to improve it.
- Canadian Institute of Chartered Business Valuators
Enlist the help of an expert who can quantify the worth of all, or part, of your business or its securities.
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 to take and what forms are needed to obtain approval for the legal termination of your corporation under the Canada Business Corporations Act.
- Shutting Down your Ontario Corporation
Follow these procedures to voluntarily shut down your Ontario corporation.
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
- RBC Business Succession Planning: Your Essential Road Map
Use this workbook to write notes as you develop your succession plan.
- The Transition Experience: What every Canadian business owner should know
Whether you are selling your business, transferring it to family members or closing it, you can get answers to your succession questions in this guide.
- CIBC - Succession planning
The CIBC has articles, tools and services to help you build a succession plan that reflects your personal and business goals.
- Succession planning and business transfer
Know your options when it comes to succession and identify the best path for you and your company to follow.
- Transition financing
If you are retiring or ready to sell your business, you could get money for succession planning.
- Business Opportunity Grant
If you are an agriculture producer, producer group or a new entrant to the industry you may be eligible for funding for your projects.
- Business succession
If you plan to sell or purchase a financially viable business, this fund may be able to help.
- Regional Economic Intervention Fund (FIER)
Your business could obtain financial assistance in the form of equity for your start-up, development, succession and recovery projects.
- Venture Connect – Business Succession Planning
Get support with succession planning for your small business, connect with potential investors, and view an online listing of businesses for sale.
- OpportunitiesBC
Use this database to promote your existing business for sale or lease, or to attract investment from foreign investors.
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