Fuller Insights

You have built a thriving family business and now you are concerned with one of the most significant issues you’ve ever faced – Who will take over the reins of leadership and how will they be prepared for a management role? What income will you receive upon exiting the business? What are the tax implications of selling or transferring your business?

Succession planning is a process whereby a business owner can properly plan for a smooth transition and a business legacy that will remain intact for years to come. The process is a highly-customized business advisory service that considers a wide range of issues including selection and transition of successor leadership, evaluation of risks (e.g., how a change in leadership may impact key stakeholders including employees, customers and suppliers), division and gifting of assets, tax-effective ownership transfer and post-retirement financial planning.

The Dangers of Poor Succession Planning

In a worst case scenario, a company without a proper succession plan can go bankrupt. Even if the company survives, irreparable turmoil and harm may result. Sales may plummet, resulting in a much lower purchasing price being offered by a third party.

A business that lacks strong leadership can also create employee problems such as unclear reporting lines, disruptions in operations causing poor customer delivery or service, conflict between working family members, etc.  This problem can affect stakeholders’ confidence in the company.

Without a succession plan in place, there could be a substantial overpayment of income taxes. Even worse, a company that hasn’t effectively prepared for a succession may not be able to provide adequate financial compensation for the outgoing owner, or can even force the owner into personal bankruptcy where the owner has given personal guarantees as collateral for the company’s bank loan or other liabilities.

It’s Never Too Early for Succession Planning

It is advisable to have a plan in place well in advance of your anticipated retirement. This will provide peace of mind that the business will remain in good hands in case you’re prevented from working due to illness, disability, or death. Succession planning allows you to take advantage of tax planning strategies whether you decide to transfer your business to the next generation or sell your business to management or a third party.

In addition, advance planning can also protect your “personal balance sheet” by providing for the management, investment and growth of your income and assets during retirement.

Get Advice Today from Business Consultants in Toronto

A succession plan is absolutely necessary to ensure the continuity of your business – and your legacy – following your departure. If your business requires a succession plan, or you wish to make sure that your existing succession plan is ironclad, contact our business consultants in Toronto today for a complimentary consultation.