Insight: Succession plan includes value creation
CONTINUATION
Succession planning is crucial for any business, and to see how it can be done well, Canadians can look to the example of the iconic clothing company Stanfield’s.
The fourth-generation chief executive of this Nova Scotia-based company is in the process of passing the company to his son.
“This company has done a great job and defies the laws of probability just by being a fifth-generation business,” said Mike MacIntyre, senior manager of consulting for the Business Development Bank of Canada in Nova Scotia.
Succession planning is crucial for any business and Mr. MacIntyre suggests it start at least two to five years before the transition. Professional advice on taxation and legal implications should be sought. A business valuation for taxation and capital gains purposes is also important, whether a company is being sold to a family member or to someone outside the family. In most cases, financing has to be arranged.
Failing to put a wellthought-out succession plan in place is the primary reason family businesses don’t succeed into the next generation, Mr. MacIntyre said.
“This is especially true when passing the torch from one generation to the next. It’s often very difficult for the person who built the company to let it go, particularly from the first to second generation. This is the point of the highest failure rate.”
One way to succeed is to make value creation part of succession planning. Mr. MacIntyre describes this as “a conscious planning process” that assesses the productivity of the business, the quality of the human resources and how the value of the business can be increased before it moves into new hands.
Focus should be on the healthy continuation of the business and a crucial part of that involves company personnel. “You need to create a transition plan for key employees and the next generation of management. If too many leave at once, it can create a huge vacuum in the business. If you lose your critical mass, you also lose the corporate memory and the formula of why the business worked.” It can take two or more years to condition a business to ensure maximum value, he said. In addition, it’s important to be prepared for the unexpected, such as health crises or sudden changes in the marketplace.
Succession planning is going to be a major concern for Canadian businesses in the next decade. Of the 31,000 registered businesses in Nova Scotia, for example “about 20,000 will change hands in the next 10 years,” Mr. MacIntyre said. “This is the story right across our nation and we have to find a way to do it so it benefits both the business and the community.”