A journey, not an event: Why succession requires a long-term strategy
By Shane King
National Leader, Succession Services
Lynne Fisher
National Team Leader, ExitSMART
Business sales are booming and you might be considering an exit. To transition your business to a new owner or family member is a complex process, with many interconnected parts that can quickly turn succession into a challenge instead of a celebratory conclusion.
How can you avoid the potential problems? By looking ahead and understanding where you need to go.
[insights]
- Merger and acquisition activity is high, creating a positive market for business owners looking to sell.
- The sale or transition of a business can be a lengthy process with a myriad of tax implications. The right structure can ensure you get the most out of your life's work.
- The story of Zanchin Automotive Group's business transition shows how the process works, and how MNP advisors can help you navigate the journey ahead.
Building a successful business is the result of years of hard work and dedication. With all the time you’ve poured in, you deserve to capitalize on what you’ve created.
Planning for succession early is the best way to ensure you achieve that goal, even if you end up exiting your business sooner rather than later, transitioning the business early due to circumstances outside of their control, or changes in plans.
In the fourth quarter of 2021, Canada saw the highest number of mergers and acquisition activity in five years. With a strong market, you might be exploring a sale and considering your succession plan. Taking the steps to develop a plan now, so it’ll be there when you need it most, can help you get better value and ensure you have the widest array of options.
Engaging with a succession specialist early will also help you establish a team of insurance agents, financial advisors, lawyers, and accountants who will work together to ensure you exit on your own terms and timelines.
As you consider transitioning out of your business, the following advice will help to ensure that you’re in a good position to sell even if that happens earlier than you expected.
01.
No matter where you are in the business cycle, making time to focus on succession has benefits.
For business owners who typically put in long hours taking care of day-to-day tasks, it can be tempting to wait until you’re not so busy.
The reality is you will always be busy. The earlier transition planning is done, the more options are available to you and the higher the likelihood of a successful outcome.
02.
The value of a business is not based on what you think it is worth, but on what the market will pay.
If you need a certain amount of cash out of the business to fund your next stage, get at least an approximate valuation as soon as possible.
Then, if the business value (net of tax), is insufficient to meet future requirements, you can begin to build value by identifying the true value drivers in your business and implementing an enhancement process. One of these key value drivers may be developing a key employee retention program.
In today’s hot labour market, plans that attract and retain top talent are extremely valuable. In fact, succession plans that include the sale of all or part of the business to employees are among the most popular in the current market.
Planning ahead will give you time to identify strategies that will give you the biggest benefit and also to put those plans into action. For business owners who typically put in long hours taking care of day-to-day tasks, it can be tempting to wait until you’re not so busy.
The reality is, you will always be busy. The earlier transition planning is done, the more options are available to you and the higher the likelihood of a successful outcome.
03.
Exit planning requires a team approach to ensure the interests of all stakeholders are managed.
Shareholders, and in many cases, family members, need to have input on your plan.
Establishing your team (comprised of your lawyer, accountant, wealth advisor, succession planner, and possibly others) will ensure you are in a position to manage your advisers to get full value — and minimizes the chance of overlapping or unnecessary fees.
04.
Potential buyers need to feel that the business can thrive after the transition.
Many business owners are highly involved in their businesses, even at the mature stage of the business cycle. They have the relationships with key customers and suppliers, make all major decisions and often hold a great deal of information in their heads.
A succession plan will focus on building management into these aspects of the business, so that when there is a change in ownership there is minimal disruption to the day-to-day operations of the business.
05.
Use your tax and estate planning time to ensure you maximize the amount you receive for your business.
The decision to sell will influence your tax situation. An experienced tax advisor can take you through your options and help you create a plan that minimizes immediate and future tax liabilities for all key parties. Tax strategies continually change so ensure this aspect of your plan is updated regularly.
The succession experience, with Zanchin Automotive Group
Succession can be intimidating: when do you start planning? How long does it take? How do you start preparing the business for a sale? What are tax impacts of a selling the business, or transitioning to a family member?
With the help of our experienced advisors and our ExitSMART team, you’ll get the answers to these questions. Our team works with you to establish clear goals and develop a thorough plan to achieve them. Backed by deep knowledge and experience, we understand how to turn your vision into a reality.
And that’s just what MNP did for Zanchin Automotive Group. With more than 34 dealerships throughout the Greater Toronto Area, Joe Zanchin built a successful business from the ground up, and was looking to transition operations to his daughters. By working with MNP, the Zanchin family got the solutions they were looking for.