Whether a business is worth $1 million or $100 million, the same
principles apply when it comes to business succession. After many
years of experience in private company succession (and with over a
third of a billion dollars of transaction value behind me) I see
business owners falling into the same predictable patterns time and
It's understandable because while business owners are
skilled at business operations, they have little experience in
succession planning. After all, most business owners will sell or
transition out of a business only once. Let's take a look at
some of the key lessons to be learned.
Mistake #1: Never Letting Go
You may have built a successful business for which you deserve
to receive many accolades. But if you're in your late 60's
and have no succession plan you are in real trouble. It's not
unusual for business owners to work long past normal retirement
age, which we tend to think of as 65. There are many reasons for
this, for example, it can be hard to give up the income generated
by the business, or perhaps the business owner can't envisage a
life away from the business. However, my experience with business
owners and their businesses has taught me that not letting go can
be fatal to a successful transition.
I have noticed that a business actually takes on many of the
traits of the owner. Therefore a 40-year-old owner who is
dynamic and growth oriented will create a business that is dynamic
and growth oriented. That same owner as an 80-year-old will
naturally have less energy and will also be more risk averse.
Similarly, the business will also have less energy and will take
fewer chances. Based on my experience, if the founder fails to exit
the business prior to age 70, the vitality, value and saleability
of the business may be seriously harmed.
The good news is that planning is one of the most important
factors in making a successful transition to retirement. Planning
for succession doesn't lock you in to a specific retirement
date, but it does mean you prepare the business for your exit at a
time when your business acumen and decision-making ability are at
their peak. Perhaps not surprisingly, this is often the period of
time when your business is most saleable.
Mistake #2: Overvaluing the business
Another very common mistake made by business owners regarding
their succession plan is valuing the business for more than its
actual market value.
There are many ways to value a business, but most business
owners will over value a business because they are emotionally
attached to it. Perhaps the over valuation, this
"X-factor", is the emotional value attached to the
business by the owner. However, purchasers will not pay for this
X-factor. Purchasers make business deals based on cold, hard
financial facts. There are generally accepted formulas for valuing
a business and an experienced M&A advisor can assist a business
owner in determining price. Beyond that, market factors can come
into play and there will be periods of higher and lower demand in
any industry. Furthermore, if the M&A advisor can generate
competition for the business then this can drive the price up.
However, a business owner is unlikely to find a buyer if they
are holding out for an unrealistic and unsupportable price for the
We'll look at some more of the lessons to be learned from
business owners who "did it wrong" in my next blog.
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.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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