Over the years we have done several educational sessions for business owners and their families on Succession Planning. The question that is most frequently asked during these sessions is: "Where do I start?"
To assist business owners with taking the necessary first step in developing a succession plan, we have created a checklist that outlines key areas for consideration. Business owners can use this list to "start" a conversation with a business advisor such as their lawyer. This important first step will lead to a succession plan that will prepare the business for transition and maximize its value either for a sale of the business or for the family members who take over the business. Other benefits of early planning are:
- Successor(s) can be trained to assume the leadership role
- Education and careers can be steered appropriately
- Current owner(s) can develop a vision for the growth of the business
- Family members will be looked after should an unexpected event occur such as a critical illness or accident
Key issues to address in the succession plan include:
Business Structure
- Current owner(s) future financial security
- Appropriate corporate structure for the business
- Identification of personal assets
- Voting control and tax structure
- Appearance and contents of financial statements
- Compensation strategy and performance evaluations
- Current owner(s) plan for management, leadership, and involvement
- Consideration for family members with no interest in the business
Employment Matters
- Role of key person(s) in your business
- Underperforming long-service employees
- Employees vs. independent contractors and ensuring they are documented appropriately
- Employment contracts including confidentiality and non-compete clauses
Operational Arrangements
- Ensuring leases/agreements/contracts are up to date and effective
- Protection of intellectual property
- Ensuring transferability of licenses/permits
- Ensuring that financing is available and/or assumable
- Implications for personal guarantees which require a release
Financial and Tax Issues
- The lawyer will also work with the business owner’s banker and accountant to ensure that the best tax strategies and financing options are clearly identified and implemented as required.
