Canada: Maximize The Value Of Your Business By Planning For A Successful Succession

Last Updated: March 11 2015
Article by Stephen Shaw

As more businesses are put on the market in the coming years, having a well-defined exit plan is critical in order to reap the rewards of owning and growing your business. Done properly, an exit plan will guide you and your successors through the transition smoothly and help you get the highest possible price for your business.

"Business owners are seeing that there is a lot of competition when they go to sell the companies they've worked so hard to build," says Wilma Braat, a Senior Vice President and Director for MNP Corporate Finance Inc. in Calgary. "They are giving themselves a competitive edge in what is going to be a bit of a buyer's market by engaging in planning with a range of professionals."

By sitting down with your advisors at least two years, but preferably longer before you plan to transition out of the business, you can:

  • Control how and when you will exit the business
  • Attract both strategic and financial buyers
  • Find ways to increase the profitability of your company; every dollar of extra profits could equal three dollars of extra proceeds
  • Minimize, defer or eliminate capital gain taxes
  • Reduce stress and family discord

Build a strong team

"People often don't realize that succession planning is not simply a matter of deciding when you're going to sell the business or who you're going to transition it to," says Brett Franklin, a Senior Vice President and Director for MNP Corporate Finance Inc. in Winnipeg. "That's very important, but a strong succession plan involves much more than that."

Through the exit planning process, business owners can ensure that their company has everything savvy buyers want to see. Demonstrating profitability is important but buyers have numerous other requirements, including strong management at the top and support levels.

"Companies that have strong management teams in place are more attractive to buyers than those that don't ," says Wilma. If this team isn't in place, a transition plan for turning your role over to new management should be part of your succession planning. "Whether you're selling to insiders or outsiders, a defined transition plan is by far the most valuable document you can offer buyers. Most of the goodwill you receive for your company is derived from the management team."

The key is to formulate a transition plan on paper, not in your mind, by following these steps:

  • Identify the top three to five categories in your management role
  • Detail every major task in each category
  • Create a timeline for delegating the tasks
  • Decide who you are going to mentor to take over each task

Every three months, see if the plan is being followed or if it needs updating. You'll know you're successful if you find that you can take more time off without worrying about the business.

"If, after two years, you still cannot take a three-week vacation without worrying about the business, you have not delegated enough," says Wilma. The higher the level of owner involvement in the business, the lower the value. "Buyers will pay less goodwill and they'll want you to remain involved in the business for a longer period of time after you sell it," Wilma explains.

Brett adds that a strong management team is not only essential for the ongoing success of the business, but it also introduces a whole new type of buyer to the process.

"A solid management team is essential for financial buyers such as private equity funds, as they do not have the expertise to run the business going forward like a strategic buyer would," says Brett. "This gives the owner more options as to potential buyers which can translate into a better purchase price for the business."

Reduce risk

When succession planning is done in advance of the actual transition period, owners have the opportunity to evaluate their operation and look at ways to reduce enterprise risk and increase profitability which inflates the value. "After analysis, we often find that there are relatively simple ways for owners to significantly reduce the risk of a business failing or running into problems, which in most situations also translates into increased profitability," says Brett.

For example, businesses that depend on just one industry, have one client that accounts for more than 20 per cent of their business or are very cyclical, are often perceived as too risky for a buyer to pay top dollar for. That's why taking action on such issues today will make the business more attractive and valuable tomorrow.

Similarly, owners can plan to create a defendable market niche to make their operations more appealing to buyers. "It's very important that, if your company disappeared tomorrow, your competitors would not be able to take your business within a few days," says Wilma. MNP team members brainstorm with clients during exit planning sessions to develop innovative ways of securing market niches. Options include improving the loyalty of your customer base, finding a great location, delivering a service few others provide, or something entirely novel and creative you may never have considered before.

Ultimately, an exit plan asks and answers all the business, personal, financial, legal and tax questions involved with selling or transitioning your business. Creating one early and reviewing it annually to keep up with changing stakeholder objectives, business fundamentals, laws and your personal situation will help you attract buyers and get the best possible price in the future.

Think About It

An important element of the exit plan is a well-thought-out contingency plan to deal with the death or disability of the business owner. This document gives the business owner's heirs and estate written instructions and guidance on what to do with the business should the unexpected occur.

"It puts transitional mechanisms in place to protect the value of the company in the case of an early exit, when the owner cannot be there," says Wilma. Mechanisms include business insurance, a key person, buy-out insurance and bonuses to encourage key employees to stay.

A contingency plan designates successors to run the business as well as professional advisors to ensure the plan is properly executed according to the owner's wishes. Integrated with a will and estate plan, this document minimizes stress and reduces the burden placed on family and employees during a difficult time.

More Ways to Build Value

  • Make sure you have accurate financial statements and a good bookkeeper. Potential buyers may be scared off if they have to wait several months for up-to-date financial statements.
  • Establish a vision for the future and document it in a strategic plan. Buyers like to see that the management team or leader knows where the business is headed and how to get there.
  • Improve what you can. Stay on top of technology, update your web site and have strong human resource policies that keep employees motivated.

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 Mondaq.com.

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

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
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
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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