Make Succession a Success
For some entrepreneurs, a looming exit or ownership transition is a time of frenzy. Not for Carol-Ann Borody-Siemens. She began thinking of succession in a methodical way 20 years prior to selling her first business.
“Plan for it long before you execute,” says Borody-Siemens, president of GBL Solutions Inc., a group benefits and life insurance firm in Winnipeg. “I set up my previous business and my current one with an eye to the future, and encourage clients to do the same.”
In succession planning, two dangers are contemplating it too late and having a business too centred on the owner. To address both risks, consider early on how your practices and people drive your company’s worth.
Brett Simpson, chairman of Rogers Group Financial in Vancouver, says start with a clear strategic plan and systemized processes. “The more repeatable, the better your quality control, and that’s translatable into business value.”
How you attract and retain talent is a best practice for succession too. Having the right people ensures the business becomes much more than just about the owner. That boosts value for an ownership transfer, and also creates a potential pool to take over. “That’s the farm team; the people most likely to be successors in many businesses,” says Simpson.
Even if those people don’t get control, keeping them can be essential. “Most businesses have key employees. A business will be more valuable if those employees are minority shareholders, so if you sell they don’t walk,” says Mike Fralick, president of Fralick Financial & Insurance in Halifax. “Locking in key employees can make or break the value.”
In family businesses, succession brings other considerations. Some relate to readiness. Linda Fairburn, a Guelph, Ont. business consultant who specializes in family business succession, says it’s smart to have family members work in other organizations as well. That way, they can bring back experiences, views and skills that can enhance their candidacy to take over the reins.
Other family succession issues concern financial fairness. Borody-Siemens was in business with her father, and when she bought in, her father compensated her siblings (who weren’t in the firm) to even things out. Some family business owners take out life insurance policies as a strategy to equalize what they’re passing on.
Many succession planning steps are just good business strategy overall. One specific transition issue is getting maximum tax relief. For example, will this be a share sale or asset sale? Will tax liabilities be split among family members, i.e., via a
A BUSINESS WILL BE MORE VALUABLE IF [KEY] EMPLOYEES ARE MINORITY SHAREHOLDERS, SO IF YOU SELL THEY DON’T WALK. —Mike Fralick
family trust? If the business owns real estate, will the owner just sell the operations and move the property into a holding company?
“Well before the day to sell, I talk to clients about how they see this going, so we can structure the corporation in the most tax-efficient manner,” says Fralick.