Succession Readiness
After spending years building a successful business, you’re starting to think about the next chapter. Maybe you’re planning to sell your business or transition the business to your children. Either way, that last day of work is starting to inch closer to becoming reality. Are you ready for it?
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Tax and estate planning: Are business owners confident that the net value (after tax) of their business aligns with their financial goals?
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After analyzing more than 550 responses from Canadian business owners, these are the most important data points that demonstrate how ready these business owners are for succession.
8.5%
Clear Objectives
13.3%
Sought Advice
13.7%
Valuation Report
6.7%
Business Plan
9.6%
Member Retention
15.5%
Up-to-date Plans
8.5% of business owners have set clear and defined objectives for the future of their business
That’s a more complex question than it seems. You may be ready to retire and enjoy the post-work life, but to truly maximize the investments you’ve made over the decades, you need a succession plan that’s detailed and developed well in advance of when you hand over the keys. Based on the data taken from MNP’s ExitSMART assessment tool, many business owners have an idea of how they want to transition out of business leadership, but few have taken the steps to create a concrete plan. In this report, we unpack the data to show how many business owners are truly prepared for succession, why these trends are concerning, and what you should be thinking about if retirement is on your horizon.
In this report
Introduction Short description here and here
INTRODUCTION
CONTACT US
Kerry Smith, CPA, CA, TEP, is a Partner within MNP’s Professional Services team and National Leader of Family Office Services, part of MNP’s Private Enterprise group. Based in Vancouver, Kerry provides a comprehensive suite of services custom-designed to meet the unique needs of private enterprises and complex Canadian families.
Kerry Smith, CPA, CA, TEP National Leader, Family Office Services
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Objectives: Do business owners have clear objectives for transition?
In this report, we unpack the data to show how many business owners are truly prepared for succession
Tax and estate planning Short description here and here
Business valuation Short description here and here
Value enhancement plan Short description here and here
Retention of employees Short description here and here
Emergency planning Short description here and here
Conclusion Short description here and here
Objectives Short description here and here
Objectives
Tax and Estate Planning
Business Valuation
Value Enhancement Plan
Retention of Employees
Emergency Planning
of business owners have set clear and defined objectives for the future of their business
have sought advice and have a structured tax and estate plan for when they exit the business
have a qualified valuation report in place for their business
have developed a current, up-to-date business plan that reflects value objectives
have created role descriptions, skill requirements, a performance management system, and a rewards or sharing plan to ensure retention of key team members
have an up-to-date will, power of attorney, emergency continuity plan, and shareholders agreement
Do business owners have clear objectives for transition?
Only 8.5% of business owners have set clear and defined objectives for the transition of their business’s ownership of the short and long term. A strong percentage (84%) have given some thought and have answers to the big issues like timeline, terms, price, and buyer. When our team has conversations about succession planning, we typically hear that people have a rough idea of when they want to exit. The other areas are not top of mind, yet so important to building a successful plan. When you sell the business, are you open to a transition period to support the new leadership group? If you have a price in mind, what informed that price and what would a lower sale price mean for your plans? Questions like this are going to drive your ability to stay in control of the succession process.
84%
Timelines
Terms
Price
Buyer
Have answers to these big issues
Actions to Take
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Action A
Action B
Action C
Tax and estate planning:
Are business owners confident that the net value (after tax) of their business aligns with their financial goals?
61.3% of respondents said they were at least somewhat confident in the value of their business. But only 13.3% of the respondents have actually sought out professional advice and built a structured tax and estate plan. Creating a plan is critical to maximizing the return on investment from your business. The tax liability on a business sale can be significant if you don’t take action well ahead of the sale. Several exemptions and structures — including the lifetime capital gains exemption (LCGE) and the ’24-month rule’ — can help, but they require planning years ahead of the actual sale. It’s good to see that 48% of business owners are somewhat confident in their business value, but without consulting professional advice, they likely do not have a clear picture of how much they will see after tax, depending on how they’re structured for the sale. There are also two other groups of business owners that either have not considered the net value of their business (24.4%) or do not believe the value meets their financial goals (14.1%). If you fall into these groups, it’s important to take some steps to formulate a roadmap now so you’re prepared for retirement. Even if you believe your business won’t provide the funds you need, exploring the topic will help you identify what the gap is instead of operating in the unknown.
How much money have you set aside for retirement?
When do you want to retire?
How would you define your values, goals, and objectives?
Are there any potentially challenging family, interpersonal, or financial issues to be aware of?
Questions like this get help you determine what your financial needs will be:
Confident in the value of their business.
Built a structured tax and estate plan
61.3%
Business valuation
Do owners know what their business is worth?
This question is clearly on the mind of business leaders. Only 6.4% of respondents say they have not considered it. However, only 13.75% of respondents have sought advice and have a qualified valuation report in place for their business. In many cases, periodic valuations are not required. The challenge here is that nearly half of business owners (45.8%) say they have an idea of what their business is worth through their own research, while 33.9% say they’ve thought about their value but haven’t sought a valuation. Business valuations are complex and using industry comparables can make sense if you want to get a rough sale price estimate. A specific number from a recent sale may have some caveats that could not apply to your situation, so be careful with how much stock you put into the numbers you read about. That sale might have the condition of a long leadership transition period, leading to a higher sale price. Or, the organization is struggling with employee retention and it’s driving down the business value. When you’re dealing with such a significant transaction, that will greatly impact your retirement plans, you need to approach the situation with caution and strategy. If you’re considering a business exit soon, start to lay the groundwork to get a proper business valuation so you can make informed decisions.
Have not considered it
Have a qualified report
Have an idea, through their own research
Have thought about it
6.4%
13.75%
45.8%
33.9%
ACTION C
