Strategic Succession Planning – Don’t Wait Until It’s Too Late
December 14, 2023 · 2 mins
Over 75% of Canada’s business owners plan to exit their business within the next decade and about 1 in 10 business owners have a formal business succession plan in place. Succession planning has always been important, but in today’s market, it is critical given the number of businesses that will change hands in the near future.
Business owners with a succession plan in place will set themselves apart from those that do not.
A well-structured succession plan can bolster buyer confidence, provide operational stability, and ensure a smooth transition for all parties involved in the transaction – all of which increase the salability and value of the business.
From an M&A perspective, below are some of the key areas to focus on in advance of a potential sale of a business:
- Financial Transparency – Maintaining accurate, current financial records is critical to instilling buyer confidence and reducing due diligence challenges.
- Current Leadership – Assess the current leadership structure and address any gaps that need to be filled. If active in the business as an owner-operator, identify whether there are potential successors in the business who could step in to take over your responsibilities.
- Create Talent Pipeline – A robust team of qualified individuals is imperative in today’s market where many businesses are facing labor shortages.
- Establish Operational Efficiency – Creating and executing a plan to streamline operations will make a business more attractive to a buyer. Efficient operations translate into higher valuations.
- Diversify Revenue Stream – Diversifying revenue-generating sources can minimize risk and enhance the business’s appeal. A large single customer or a narrow range of products/services can limit the buyer pool and decrease the likelihood of a sale.
- Customer Relationships – A loyal customer base can play a very important role during negotiations. Having “sticky customers” with contacts in place will increase the value of a business.
- Legal – Where possible, any ongoing litigation or legal issues should be addressed well in advance of taking a business to the market. If there are ongoing matters in business, disclose them upfront when taking your business to market.
- Professional Advisors – Engagement with an experienced corporate lawyer, accountant, M&A advisor, and wealth advisor should be established before considering the sale of a business. Experienced advisors will help make sure you structure the sale of your business in a tax-efficient manner and anticipate potential roadblocks.
- Market Position – Building a strong market presence can lead to a competitive advantage and give a business an upper hand when selling.
These are just some of the areas, that if addressed in the years prior to the sale of a business, can have significant impacts on the outcome of the transaction. Given the volume of businesses anticipated to change hands in the coming years, taking the time now to diligently address these strategic initiatives can help secure the future success of the business and maximize its value when the time comes to sell.
Peter MacSwain
peter.macswain@confederationgroup.ca
