Planning for succession (1)
Asset/creditor protection and the valuation of your business requires on-going attention.
By being proactive, say 5-7 years out, you are in a great position to minimize risk and maximize the value of your business.
The first step
- If something happened to you today
- who would run the business?
- what income would you need?
- Valuation-how much do you think the business is worth if sold to an:
- outside buyer
- family member
- Do you have a Will or more importantly, dual Wills, power of attorney, shareholders agreement?
- Do you have a strategic plan?
- Who are the stakeholders in your business?
- family members
- key employees
Family Participation Plan
- Criteria for family to enter the business
- age,
- experience
- education
- compensation
- Who will have voting control of the company and for what period?
- Training and supervision, mentor
- Retirement
- Marital issues, protection, transfer of ownership
Management buy-out
- Qualifications of key employees
- Do they get along with other stakeholders?
- Are they present for the long-term?
- Can they afford the purchase?
- Are they insurable?
- Do they have good leadership?
- Are they free of baggage?
Improving the value of your business
- Focus on growth prior to the sale
- Evaluate discretionary expenses
- Assess company performance to others in the industry
- Document business decisions and operational systems to make transition easier for the purchaser
- Remove non-operating assets at least 2 years prior
- Purification, deal with tax issues
- Debt restructuring
- Restructuring shareholdings to maximize after-tax cash flow from sale
- Transition team in place
Footnote:
- Reference to CICA publication on Succession Planning
