As a business owner, it can be difficult to find the time to focus on your eventual exit from your business when you're focused on the success of your business, but investing the time now can pay important dividends later including a smoother transition and a well-funded retirement.
So how can you build a successful business succession plan?
First, consider your various exit options.
You may wish to keep your business in your family, but family dynamics can complicate things.
Often family businesses fail in the second generation, so make sure you carefully consider your family member’s ability to take on a leadership role.
If there is a potential leader in your family consider grooming them as soon as possible.
Another option is a management buyout.
Normally the management team already understands the business and is well-known to your customers and suppliers.
However, they may have limited personal cash, so you may need to offer a favorable purchase price or financing to close the deal.
A third exit option is selling to an existing business partner.
This can be an attractive option with a quick close, especially if you have a shareholders agreement in place which sets the terms for selling your business interest.
Finally, they're selling to a third party.
Generally., this is the best option for maximizing your sale price.
However, it may involve disclosing confidential information, in some cases to a competitor.
Whichever exit option you choose it's important to get ready in advance.
Here are a few things to consider to make your business more attractive to potential buyers.
Develop a deep and talented management team, expand and diversify your customer base, established consistent recurring and high-margin cash flow and lastly keep your information systems up to date.
Another important part of your business succession plan is your retirement plan.
For many business owners their business is their retirement plan, but often it can take longer than you'd like to sell your business or you may not get the price you thought you would so it's important to set some money aside outside your business for your retirement.
One way you can do this is to an individual pension plan or IPP.
An IPP is a special retirement plan for incorporated business owners.
It enables you to make higher contributions compared to an RRSP that are tax deductible to your business.
And finally make sure you have the right advisory team in place including your lawyer, accountant, banker and financial advisor.
To learn more about business,succession planning, I invite you to contact an RBC Wealth Management advisor today.
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