Business transition: planning your succession

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Business transition: planning your succession

  1. 1. BUSINESS TRANSITION: PLANNING YOUR SUCCESSION CONTENT PROVIDED BY HUGH LATIF (BDC CONSULTANT) AND GREG WRIGHT (GRANT THORNTON CORPORATE FINANCE INC.) FINANCING | CONSULTING > BDC.CA
  2. 2. WHAT IS SUCCESSION PLANNING? • Planning the passing of the baton from one leader to another. WHY IS IT IMPORTANT? • The handover is a critical moment that significantly impacts business results. • Unplanned/poorly executed succession moves can be very costly. Business transitions: planning your succession > PAGE 2
  3. 3. START PLANNING TODAY • Plan early so you can choose the right successor and/or maximize your selling price. • Keep your plan realistic, well structured and flexible. • Allow 2-5 years to implement a transition plan. • Update and adapt your plan as circumstances change. It’s an ongoing process. Business transitions:planning your succession > PAGE 33 transition: planning your succession > PAGE
  4. 4. WHEN CREATING YOUR PLAN, MAKE SURE YOU CONSIDER HOW TO: • maintain a strong strategic direction; • ensure financial performance; • keep goodwill and reputation intact; • retain HR talent; • reconcile personal interests and future business interests. Business transitions: planning your succession > PAGE 4
  5. 5. WHAT IS BEING PLANNED? • Legal transfer of business ownership • Tax implications of disposing the business • Financing of the successor • Division of profits after the transition Business transitions: planning your succession > PAGE 5
  6. 6. MANAGING EMOTIONS TRANSITION, ESPECIALLY WITHIN A FAMILY, CAN CAUSE STRESS, ANGER AND RESENTMENT. SOME TIPS TO HELP YOU AVOID NEGATIVE EMOTIONS: • Define roles and responsibilities and put them in writing. • Keeping everyone in the loop throughout the process. • Seek external advice from consultants to resolve issues objectively. • Once a successor is chosen, communicate a clear action plan to all stakeholders. Business transitions: planning your succession > PAGE 6
  7. 7. WHAT ARE YOUR OPTIONS? When planning succession, you have three main choices: PASSING THE BUSINESS TO A SUCCESSOR (FAMILY MEMBER, EXISTING MANAGER, ETC.) Business transitions: planning your succession > PAGE 7 TRANSFERRING OWNERSHIP THROUGH A MANAGEMENT OR EMPLOYEE BUY-OUT SELLING THE BUSINESS TO A THIRD PARTY
  8. 8. WHAT ARE YOUR OPTIONS? BEFORE MAKING A FINAL DECISION, ASK YOURSELF IF YOUR CHOSEN TYPE OF TRANSITION WILL: Business transitions: planning your succession > PAGE 8 • be aligned with your retirement lifestyle choices; • allow you to keep a role in the business if you so choose; • give you enough retirement income; • secure the continuity of the business.
  9. 9. PASSING YOUR BUSINESS TO A SUCCESSOR ADVANTAGES • Reduces third-party involvement. • Possible to maintain influence in business. DISADVANTAGES • Identifying and training the right successor can be difficult. • Potential for family conflicts at work and home. Business transitions: planning your succession > PAGE 9
  10. 10. PASSING YOUR BUSINESS TO A SUCCESSOR HOW TO CHOOSE AND DEVELOP A SUCCESSOR • Establish the ideal profile for your successor. • Identify candidates, pinpoint their weaknesses and devise a plan to remedy them. • Assess candidates by using measurable criteria or a mentorship-based evaluation system. Business transitions: planning your succession > PAGE 10
  11. 11. MANAGER AND EMPLOYEE BUY-OUT ADVANTAGES • Limited due diligence usually necessary. • Rewards management for their long-term support of the business. • Protects legacy and business independence. DISADVANTAGES • Management often has limited access to capital (effect on price/terms). • Vendor take back likely (seller loans part of purchase price to buyers). • Failed attempt can affect business morale and performance. Business transitions: planning your succession > PAGE 11
  12. 12. MANAGER AND EMPLOYEE BUY-OUT • A successful buy-out mixes the right people (leadership) and right funding (financing package). • Communication is essential to ensure the team feels part of the decision. • Different types of buy-out include leveraged buy-out (LBO), Buyer/Vendor initiated management buy-out (BIMBO/VIMBO) and Management buy-in (MBI). Business transitions: planning your succession > PAGE 12
  13. 13. SELLING YOUR BUSINESS WHAT ARE YOUR OPTIONS? 1. Initial Public Offering (IPO): The sale and/or issuance of shares in a private company on a public stock exchange. Interesting for high growth companies that need equity capital. 2. Private equity: The sale and/or issuance of shares to a financial investor. Allows shareholders to generate liquidity and participate in future upside. 3. Sale to another business: The sale and/or issuance of shares to another operating company. A good option for shareholders looking for a clean exit and the highest possible value. Business transitions: planning your succession > PAGE 13
  14. 14. SELLING YOUR BUSINESS HOW TO INCREASE THE VALUE OF YOUR BUSINESS PRIOR TO SELLING • Keep retained earnings high. • Continue to invest and improve right up to the time of sale. • Develop a strategic plan beyond the handover period to demonstrate long-term potential. • Highlight and promote competitive differences. • Develop repeatable/teachable processes to show your business can work without you. • Train and empower staff to reduce employee turnover. Business transitions: planning your succession > PAGE 14
  15. 15. KEY POINTS TO REMEMBER • Start planning early. • Meet and communicate regularly with all stakeholders. • Write down your plan and keep it updated. • Select a good team of professionals. • Prioritize direction over destination. Business transitions:planning your succession > PAGE 15 transition: planning your succession > PAGE 15 Business transition: planning your succession > PAGE 15
  16. 16. FOR MORE ADVICE, GO TO BDC.CA /GROWTHCHALLENGES Business transitions: planning your succession > PAGE 16 Business transition: planning your succession > PAGE 16
  17. 17. BDC IS THE ONLY BANK DEDICATED EXCLUSIVELY TO ENTREPRENEURS. FINANCING | CONSULTING BDC.CA/GROWTHCHALLENGES Business transitions: planning your succession PAGE 17
  18. 18. Business transitions: planning your succession PAGE 18

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