WHAT HAPPENS WHEN YOU LEAVE YOUR COMPANY BEHIND? // SUCCESSION PLANNING
Lynne Fisher, national leader, ExitSMART with MNP, also sees a disproportionately small number of clients leading the conversation about succession planning. Drawing from her experience with MNP, she estimates that only about 30 per cent bring up the subject. “It’s more likely that the advisor will bring it up,” says Fisher. “The reasons vary. Owners think it will not take long once they’re ready to retire. Many business owners don’t like to think about their next stage, as they love and are energized by their businesses. Retirement seems boring, less purposeful, and owners think that they won’t have an identity anymore, feeling, ‘if I’m not a business owner, what am I?’” She lists other common reasons owners avoid the topic. “They’re afraid of losing control over a business that they’ve worked so hard to build. If they’re considering family transition, they don’t want to cause problems within the family by opening a ‘can of worms.’ Sometimes they’re not sure where to start or what they’ll do after they’ve left their businesses.” Like Wusyk, Fisher knows the consequences for a lack of succession planning are severe. “There are both short-term and long-term impacts to the business and to the family of the owner. Some that we’ve seen include: • Owners receiving diminished value from their businesses because the goodwill hasn’t been transitioned to employees and managers – i.e. all plans, decision protocols, and systems are known only to the owner. • Potentially significant tax burden on sale, due to the legal structure and organization of the business. Strategies to mitigate this burden take a minimum of two years to implement, and many take more. • In the event of sudden loss of the founder, devasting financial and emotional loss to the family, due to the potential devaluation of the business, and the loss of regular income and dividend streams. • The loss of key employees who fear an uncertain future, and leave due to the absence of a succession plan.
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MAY 2019 // BUSINESS IN EDMONTON // BUSINESSINEDMONTON.COM
• In a family business, conflict and strife due to uncertainty, including “who will inherit the business?” and “is there a place for me?” Fisher raises a very good point about how succession planning is more than deciding who will take over the company. Timing is also crucial. “An important consideration for succession planning in Alberta is the economic cycle. Owners want to be timing their exit for an upcycle when values are up, buyers are abundant and interested, and business is good. This is one of the reasons that starting early with planning, and being ready when the economy is strong, is so important. Whether owners are considering selling to a third party, transitioning to family or selling to employees or managers, it will be easier, and they’ll generally get a better return during an upcycle. “Getting to this point, however, takes time and preparation – an absolute minimum of two years. Once the upcycle hits, it’s often too late and too busy to begin the appropriate planning.” Fisher assures business owners that while the conversations they must have about succession planning can be difficult, MNP smooths the way. “The discomfort is eased by assuring the owner that he/ she will always be in control of decisions and timelines, that we’ll be there from the beginning, and all of the way through implementation. We will work with their other advisors as needed, and we will work with the owner on both the transition of ownership and of leadership. We address matters of the ownership (who will acquire the shares, and for how much?), the business (ensuring that a healthy, well led business is transitioned at a value that fits with the owner’s objectives), and the family (if and how the family will be involved, and how they will work together, estate planning, etc.).” Owing a business is never easy and it comes at the cost of many sleepless nights, long hours, debt, blood, sweat and tears. The reward is a legacy that can span generations. Don’t let that legacy slip through your fingers by avoiding what may be the most important conversation of your career. Your succession plan is how you continue to make an impact, long after your time as the leader of your empire has passed.