Jared Burns, CPA, CA
September 3, 2022
A good plan can go a long way. Here are the top 3 mistakes business owners make in their business succession planning.
Being a business owner right now is kind of like the end of the movie Rocky IV. Many have endured an incredible amount of adversity (punches) in the last few years for many obvious reasons. Some have come through it stronger, some limping along, many owners are tempted to throw in the towel. Whether or not you want to keep it going, get started, or exit, you need to plan. In this article I am going to outline the top 3 mistakes business owners make in their business succession planning in hopes that you can avoid all of them.
Mistake 1 – Keep the plan in their head
Business owners are notorious for solving problems in their own head. They live and breathe their work because they must. The problem with keeping your plan about how you strategize to exit your business to yourself is that succession in any form (selling to a third party, passing it on to children etc.) significantly involves other people. You may be planning your succession with completely incorrect assumptions because you haven’t talked to anybody, like your entire family. Maybe contrary to what you thought, your daughter is not interested in owning the business even if she loves working there, or maybe your son would like a chance to take over even though you got the impression he isn’t interested. Lastly, maybe you’ve assumed you will be left with a certain amount of money from the sale in your bank account, but you haven’t properly factored taxes, other costs, or a shift in the market that makes your business worth significantly less.
Mistake 2 – Don’t seek professional advice
No one knows your business like you do, that’s indisputable. But you may have sold or passed on one or two businesses in your life, or like most, you’ve never sold or passed on a business before. Your professional advisors have helped many clients sell or pass on their businesses and they have seen all kinds of scenarios. Such experiences, education and knowledge could be invaluable to you in your succession planning. Yes, they can cost money. Most often the money spent on professional services for such an important facet yields more value than costs, whether it’s more money from the sale in your pocket or avoidance of costly mistakes. I also encourage business owners to involve all the disciplines into their planning for succession: their accountant, corporate lawyer, banker, and financial advisor to name a few. All these professions will play a role in your business succession from their respective lenses. Planning for your succession is a big deal.
Mistake 3 – Wait too long
This is the biggest mistake of all. I believe succession planning for many business owners is about as attractive to think about as Wills are for everyone, which is why about half of Canadians do not have a valid Will and Power of Attorney. But if you wait too long, there are so many avoidable problems that can arise. You may not be set up to take advantage of some tax opportunities that are designed to be available for such an event. You may not have a good idea of the value and sell for less than what you could have gotten.
For me I see succession planning as important as life insurance (which by the way can be an important factor to consider for your succession planning) in that you don’t need it until, well, you need it and it’s too late. Something sudden might happen to you and your business is left in limbo, or on the flip side you could get the proverbial knock on the door where someone holds out an offer that’s simply too good to refuse but you’re not set up for the sale and now you’re scrambling. Either way you need a plan that is ready.
I emphasize on the verb planning in succession planning. Your plan, like your business, is never static, it is ever changing, malleable. Now that you know, make sure you’re always planning and avoid these three mistakes.
Author:
Jared Burns CPA, CA is the Director of Estate and Tax Planning with Louisbourg Investments. Submit your comments to jared.burns@louisbourg.net.
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This writing is for general information purposes only. It is not intended to provide legal, accounting, tax or financial advice. For complex matter you should always seek help from a professional. Any opinions expressed are my own and may not reflect those of Louisbourg Investments.