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 time again.
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 more of the key lessons to be learned.
Mistake #3: I am the Business
The nurturing of younger talent is an important job of any
business owner. Too often business owners make the business all
about themselves and don't plan for their eventual exit. A
business owner needs to have groomed a successor well in advance of
exiting the business. Having a pre-ordained successor will not only
save the business from extinction, but will actually increase the
value of the business to a buyer. If you have no natural successor
within your organization, and you are the business, you are in
trouble. Letting go and planning for succession is critical to
ensure maximum value is achieved on exit.
However, there are ways that you can have your cake and eat it
too. A well-crafted plan will allow you to secure a home grown
successor and leave open the possibility to sell your business to a
third party. The key to creating a home grown successor is,
firstly, identifying the right person and, secondly, giving that
person sufficient incentives to grow the business. It may take
several years to determine whether that person (child or employee)
has the required skills to lead the business and care is in order.
If the succession plan is implemented carefully, the business owner
will retain control of the business and be able to replace the
successor if things aren't working out. In addition, the
business owner will retain the option to sell the business to a
Mistake #4: No Management Information Systems
If you have no idea of your profit margins, your sales numbers,
what products are the most profitable and which are marginal, then
you are in serious trouble. When financial information is easy to
access in a timely manner, the business becomes more valuable. In
other words, you need to have management information systems
("MIS") in place that will allow you (and any purchaser
or successor) have a clear picture at any given time of how your
business is doing financially. Most businesses that have
substantial value will have long ago implemented good MIS.
Keeping accurate financial records is vitally important to the
successful running of a business. When the time comes to sell, bad
record keeping creates even more of a problem. Sales and
profitability figures are a key component to determining value and
buyers are going to want to see concrete evidence of the
company's financial information. Deficiencies in the company
records, such as errors in issuing capital or missing directors
resolutions, will come to light at the due diligence stage.
Rectifying the deficiencies is time consuming and costly.
Businesses without good MIS can be un-saleable, or in other words,
Mistake #5: Failing to be Pro-active
There seems to be some reticence on the part of business owners
to plan for succession. This is unfortunate, because planning ahead
for succession can only add value to your business. Furthermore,
"planning" doesn't mean "selling", so just
because you are preparing for succession doesn't mean you have
to sell tomorrow. I have noticed that those business owners who
implement a business succession planning process 5 to 10 years
before their anticipated retirement date find that good things
start to happen. It's amazing the way planning for an exit
focuses the mind on what needs to be done now to add value and get
the business ready for sale. As a result of undertaking this
succession planning process, many business owners find their
businesses becoming more efficient, more effective, more valuable
and more saleable.
If you want to achieve the best value for your business, then
you need to avoid the common mistakes made by most business owners
when it comes to business succession planning. Hiring professionals
(lawyer, accountant and M&A advisor) with experience in
business succession planning is the best advice I can give to
business owners who want to avoid finding themselves in a bad
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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