Canada: Succession Planning - 10 Things Every Business Owner Must Know

1. The transition of business ownership is a long and involved process

Proper planning for the orderly transition of a private company is usually deferred for a number of reasons. Many owners do not have a firm date in mind for their exit from the business' affairs and feel uncomfortable discussing these plans with their close friends and family members. However, underlying this inertia is the (incorrect) assumption that it requires only a matter of months for an ownership transition to be arranged and implemented. In reality the preparation, marketing, negotiation, financing and post-sale responsibilities will typically last between 2 and 5 years, and sometimes longer if unforeseen problems arise.

A better understanding of the process will ensure that owners are able to take advantage of the full range of alternatives available to them, thereby enhancing the value and future prospects of their organization.

2. It's important to begin with reasonable expectations

When asked to objectively assess their business owners will often overstate its positive aspects and understate its negative aspects. This could be due to an inherently optimistic nature or perhaps, after years of continued success, owners tend to overlook or diminish the usual risks and challenges.

Similarly, parties who are unfamiliar with the operations and challenges of the business will tend to provide more conservative, or even pessimistic, viewpoints of its affairs to account for their own uncertainty.

These distorted points of view, when not properly addressed, can result in a tremendous gap in performance expectations and make it virtually impossible to effect a smooth ownership transition. In this regard it is often essential to seek the counsel of an objective, experienced and informed advisor prior to initiating any succession process.

3. Maintaining trust and integrity are paramount

Successfully operating a business often requires an "adversarial" mindset. Owners must manage the competing demands of customers, suppliers, and employees while protecting their own interests. This uncompromising mindset will sometimes translate into an instinct to "get the better end of the deal" which can jeopardize the sense of trust in a negotiating dynamic.

If potential successors get the feeling that anything other than a "fair" deal is being sought by the owner their suspicions will grow and progress will grind to a halt as each new development or interaction is examined for possible ill intent. Being upfront and honest about your expectations from the process will save both time and money, and will greatly improve your chances of finalizing a deal.

4. Numerous stakeholders play a role in the process

The transition of a business is a complex affair and it is often necessary to consider the viewpoints of other stakeholders in the process. Among the stakeholder groups which commonly play a role are family members, key business employees, and professional advisors.

Family members can be among the best counselors through this process as they are in a unique position to understand the owner's priorities and whether the business owner is emotionally prepared for this major lifestyle change. The succession process will impact the family's lifestyle as well, and their concerns should be understood and considered by the owner throughout the process.

Businesses are of little value without the skills and experience of the key employees who successfully manage its affairs. Any successor will be highly reliant upon a continuation of the existing talent base, and greater assurances in this respect will result in a greater value being realized for the business.

Occasionally, transition processes arise where it becomes necessary to negotiate financial terms with existing management or family members. Deals of this nature have inherent conflicts and present their own unique challenges. Objectivity and fair dealing (while remaining sensitive to personal dynamics) are key to transition processes with these dynamics.

Finally, transaction advisors can serve as objective and experienced counsel on matters of price, deal structure, tax planning, and other important matters. In this regard, it is important to align the advisor's interests (though compensation structures, etc.) with those of the business owner in order to create a productive and positive working relationship.

5. The quality of potential successors varies widely

Many people are interested in buying a business and departing owners will often be inundated with opportunists, dreamers, and bottom feeders. In reality, very few individuals or groups have the financing, professional skill set, industry knowledge, and personal character that is necessary to make a fair and successful offer. Quickly identifying qualified buyers and determining the most promising candidates will result in a tremendous savings of both time and money.

6. Creative deal structuring can overcome many differences

Regardless of the strength of your relationship with the potential successor, there will inevitably come a point in the process where a fundamental difference of opinion arises. Some of the areas where these differences commonly arise are:

  • future financial performance or spending requirements;
  • the retention of key employees; and
  • the collectability of certain accounts.

Rather than allowing these issues to overwhelm and defeat the possibility of an agreement, you should remain open to the possibility of resolving these issues through creative negotiating (e.g. clauses within a shareholder agreement, contingent payment structures, representations and warranties on major issues, non-competition agreements, etc.). However, it is also important to stress that modified deal structuring should not be relied upon as a substitute for a thorough due diligence process.

7. Providing access to information is essential

In many small to mid-sized businesses the owner also manages the company's daily operations. This often means that the financial and operational details of the business are closely held by the owner and treated as a matter of great privacy. However, when contemplating an ownership transition it usually becomes necessary to divulge a number of sensitive details about the business in order to entice and inform the prospective successors.

Discussing such private matters with potential successors (regardless of whether they are total strangers or close family members) can be extremely stressing for owners. Accordingly, it is important to attain a state of trust with your counterparty prior to exchanging any sensitive information.

It should be noted that any proposals tendered prior to the review of key pieces of information should be viewed with skepticism as they are likely to be revised after access to the business data is granted, and perhaps materially so.

8. Emotions are often stronger than reason

Owners are often unaware of just how deeply their personal sense of purpose and identity is connected to their role with the business. It is not unusual for an individual to begin a transition with the best of intentions, only to realize a growing sense of discomfort as the process unfolds. Individuals with poor control over their emotions will often act against their best interests and, as a result, their behavior can sabotage an otherwise successful transition process.

It is therefore important for vendors to begin with a strong understanding of their emotional connection to the business, and an ability to view that relationship objectively when evaluating their alternatives. Having keenly developed emotional intelligence skills will also help owners to build and maintain productive relationships with their potential successors.

9. Thorough preparation pays off

Prior to the actual transition there are a number of opportunities which, if properly taken advantage of, can result in tremendous financial gains and greatly aid the succession process. Among other things, these opportunities could include:

  • introducing an appropriate corporate structure. By utilizing investment holding companies and adding new shareholders (e.g. spouse, children) a business owner can avoid or defer a significant portion of the taxes on transfer. Current legislation requires that many of these planning initiatives be in place for at least 2 years prior to the actual transition;
  • securing the continuing contributions of key employees over the long-term and assuring that those employees are properly incentivized;
  • identifying and, where possible, minimizing risks associated with the business' supply chain and customer relationships; and
  • assuring that key pieces of the company's intellectual property (i.e. patents, trademarks, domain names, etc.) are properly protected.

By identifying and resolving these types of issues in advance of the transition an owner will improve the attractiveness and future prospects of their business, while also increasing the breadth of available options.

Finally, perhaps the largest risk associated with the transition process is the introduction of new ownership and/or management to the business. This change has the potential to significantly impact current customer relationships, production processes, the employee base and other critical aspects of the operations. The risks associated with integrating new ownership or management cannot be eliminated entirely, but they can (and should) be pro-actively managed.


10. There is no perfect time to begin

Business owners are always wondering, "Is now the right time to transition my business to new ownership?" There are a handful of factors which can impact the timing of this process, including:

  • the competency of the current management team;
  • whether the appropriate corporate structure and tax planning is in place; and
  • the owner's personal acceptance of, and readiness for, this change.

Each of these conditions play a significant role in determining readiness and should be considered carefully prior to initiating discussions with third parties. However, one thing which should be avoided is the temptation to "time" the transition in order to maximize the value realized for the business. In this regard we note that:

  • in a weak business environment owners will wait for market conditions to improve,
  • in a strong business environment owners will wait until corporate growth has reached its peak, and
  • in a stable business environment owners wait to see their current pet project or initiative come to fruition.

Indecision associated with the timing of the succession process often leads to repeated deferrals of any transition. As a result, the process is often ultimately forced upon the owner by health or external events. In cases such as this the owner loses all benefits associated with a deliberate and pro-active process (such as pre-sale preparation, negotiating flexibility, and sufficient time to evaluate all available options).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions