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HUMAN RESOURCE STRATEGIES FOR EMPLOYERS Leaving Your Small Business: Your plan for a successful transition© 2007 G overnment of Alberta This book is for Employment, Immigration and Industry Alberta business This material may be used, repr oduced, stored or owners with 50 or transmitted for non-commercial purposes. However, fewer employees who Crown copyright is to be acknowledged. It is not to be are considering a change in the ownership or management used, reproduced, stored or transmitted for commercial of their business immediately or within the next few years. purposes without written permission from the Government It will help you: of Alberta, Employment, Immigration and Industry. • understand the v alue of having a succession plan and the This publication is not for resale unless licensed with steps involved in developing a succession plan Government of Alberta, Employment, Immigration and Industry. Every reasonable effort has been made to identify • assess where you are in the succession planning process the owners of copyright material reproduced in this • begin building a succession plan for your business publication and to comply with Canadian copyright law. • connect with further information and resources. The publisher would welcome any information regarding errors or omissions. This publication is available on-line through the Alberta G overnment of Alberta, Employment, Immigration Learning Information Service (ALIS) website—Alberta’s and Industry publications may contain or reference leading on-line source for career, learning and employment publications, trademark, patent or copyright held by third information. To access this and additional publications, visit parties (“third party material”), identified with a credit to www.alis.gov.ab.ca/careershop the source. This does not grant the user a licence or right For copyright information contact to that third party material. Users who wish to reproduce any third party material in this publication should seek Alberta Employment, Immigration and Industry permission from that third party. People, Skills and Workplace Resources 04/2007 – 25M Telephone (780) 422-1794 Fax (780) 422-5319 E-mail infoalis.gov.ab.ca To order print copies Internet www.alis.gov.ab.ca/careershop Catalogue Item 675142 This infor mation was accurate, to the best of our knowledge, at the time of printing. Labour market information and educational programs are subject to change, and you are encouraged to confirm with additional sources of information when making career, education and employment decisions. ISBN 978-0-7785-5387-8L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n  Table of Contents Introduction..........................................................................2 . Who.is.this.publication.for?........................................................2 What.is.Business.Succession.Planning?..............................3 . Business.succession.planning.is.a.process.................................3 Why.Plan.for.Business.Succession?.....................................4 . Reasons.to.develop.a.business.succession.plan........................4 Protect years ofhar d work ................................................................ 4 Keepa vital servicein y ourcommunity ............................................. 4 Buildv alue ........................................................................................ 5 Providefinancial secur ity .................................................................. 5 Avoidthe chaos ofunexpected change .............................................. 5 Preparefor the futur e ........................................................................ 5 How.to.Develop.Your.Business.Succession.Plan................6 . Succession.plan.framework.and.checklist.................................6 . Six.steps.to.building.your.business.succession.plan................6 Step1. I nitiate discussionwith stakeholders ..................................... 6 Step2. Assess curr entcir cumstances of y ourbusiness and take inv entory ..................................................... 7 Step 3.D evelop youradvisor yteam .................................................. 7 Step4. Write your plan ...................................................................... 8 Step 5.I mplementy our plan .......................................................... 14 Step 6.R eview andmodify y our plan .............................................. 14 Next.Steps...........................................................................15 Resources.for.Employers.and.Business.Owners...............16 . General.business.publications..................................................16 AlbertaE mployment,I mmigrationand Industry ............................ 16 . Other.relevant.resources...........................................................18 On-liner esources ............................................................................ 18 Publications .................................................................................... 18 Appendix:.Succession.Planning.Templates.......................19 . Succession.Plan.Framework.and.Checklist...............................20 . Action.Plan.and.Progress.Chart................................................22 © government of aLberta empLoyment, immigration and industry L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Introduction Who is this publication for? This publication is for Alberta business owners with 50 or fewer employees. It was developed for small business owners considering a change in ownership and management of their business in the immediate future or within the next few years. It will get you thinking about planning for tomorrow so that when tomorrow arrives, there are no surprises. Use this guide to help you understand what succession planning is, why you should do it and how to develop your succession plan. In October 2006, the Canadian Federation of Independent Business (CFIB) reported that about a third of Canada’s independent business owners plan to exit their business within the next five years, either selling, closing or passing it on to a successor. However, the report also states that the majority of current owners are not adequately prepared: only 10 per cent have a written plan, 38 per cent have an unwritten 1 plan and 52 per cent have no plan at all. How prepared are you? Did.You.Know? Start.planning.today. the best time to begin is now, regardless of when you plan to retire. delaying succession planning reduces your options that could be detrimental to both your business and retirement needs. “the lack of adequate time to plan and execute succession is a significant contributor to failed successions. the perception that succession can occur over a relatively short period is a significant barrier to overcome.” Succession Can Breed Success, p. 9. canadian federation of independent business, June 005.  a vailable at www.cfib.ca/research/reports/rr3007.pdf 1 CanadianF  ederationof  IndependentBusiness.  Succession Can Breed Success.Surveyr  eport,J  une2005.  Availableat   www.cfib.ca/research/reports/rr3007.pdf © government of aLberta empLoyment, immigration and industry L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n  What is Business Succession Planning? Business succession planning is a process. A business succession plan is one component of an overall business plan and strategy. Fundamentally, succession planning is a process that prepares you and your business for transition, whether planned or sudden, including the sale, closure or transfer of your business. You may already have some components of a succession plan in place. For example, taking care of insurance needs (such as life, key person or critical illness insurance) is part of succession planning. Did.You.Know? Small.business.means.big.business.in.Alberta.. ninety-seven per cent of alberta businesses are small establishments and 5 per cent of employed albertans work in these establishments. Small Business Profile—Alberta , p. .  cfib research, april 006. a vailable at www.fcei.ca/legis/alberta/ab_misc.asp A business succession plan is a living document that helps guide decisions around ownership, leadership, business structure, tax strategies and contingency plans. As a working tool, it can also help you prepare for retirement, with considerations of not only your business legacy but also your retirement needs. It is a document that you can, and should, review annually or as needed. This will ensure your current business operations align with changing environments in your community or business sector, as well as in your personal or family circumstances, as you plan your transition or exit. There are several steps to developing a business succession plan. These steps can take from several months to several years to complete, depending on the needs and size of the business. The result will be a clear, detailed plan that will help you ensure a successful exit from your business. © government of aLberta empLoyment, immigration and industry L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Why Plan for Business Succession? Reasons to develop a business succession plan The benefits of having a succession plan range from improved relationships with employees and business partners to increased value of your business to fostering family harmony. Data in the 2005 CFIB survey report Succession Can Breed Success indicate the benefits of having a succession plan as reported by small- to medium-size business owners in Canada. These benefits are illustrated in Figure 1. Additional reasons for having a succession plan could include some or all of the following. Protect.years.of.hard.work As an entrepreneur, you have likely put your heart and soul into your business, working long hours and making many sacrifices. Is your legacy to create a business that will provide you and your family financial security for the years that follow business ownership? Is it to create a business that can continue to operate efficiently after you have passed the torch? Likely it’s both Developing and implementing a plan helps assure you will achieve your personal and business goals. Planning for your business succession will help protect all your years of hard work. Keep.a.vital.service.in.your.community Your small business could be big business in your community Does your business provide a vital service in your community? Have you thought how closing your business tomorrow could affect your community? How many families in your community rely on the existence 2 CanadianF  ederationof  I  ndependentB  usiness.  Succession Can Breed Success.Surveyreport,June2005.    Availableat www.cfib.ca/research/reports/rr3007.pdf © government of aLberta empLoyment, immigration and industry L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n 5 of your business and would be affected if you simply Prepare.for.the.future. closed shop? These are relevant questions to consider when A succession plan gives you the opportunity to share your planning your transition. vision of the future with your important stakeholders. And, by carefully working through all components of the It may be that your business can no longer be sustained in succession process, you can provide a business blueprint your community. If this is so, planning will provide options. for your key employees to follow. This ensures a smooth For example, you might decide to liquidate goods over a few transition of the ownership and continuance of leadership of months or you might sell off assets to interested businesses. your company. Generally this will provide a return to you greater than simply closing shop. Now it’s time to start planning for your successful transition. Build.value You can prepare your business for transition by examining critical processes and operations before you sell. Examining Preparing.the.business key processes such as procurement, e-commerce and i would like to wind down from the business in about 0  accounting, for example, allows you to improve or years. talk of transitioning the business has caused me to standardize these areas so they become more efficient. begin thinking not only about the business future but also Efficiency will build value in your business. Are there my own. How much am i relying on the business to support areas in your business that could be improved? If so, can my retirement? What will we need to retire comfortably? technology help you improve performance in these areas? is it realistic to think the business will be purchased? Take time to do an assessment, then decide if taking action What would we be selling? Where is the value in the to improve business performance, processes or operations business? What would make the business attractive to a will create more value, leaving you a more attractive business buyer? i realize that planning must begin now to carefully to sell. position the business so we can get top value in 0 years Provide.financial.security time or possibly sooner. taking the time now to set up Succession planning takes your financial future and that and implement better project management systems and of your family into consideration. Developing your plan processes as well as updating and using technology would early to include estate planning, tax implications and other position the company better for growth and is a good contingency plans will secure financial peace of mind for starting point. these systems will also help me to begin to you, your family and your business stakeholders. share what is inside my head so people will rely less on me. —Owner, Edmonton, Construction Company Avoid.the.chaos.of.unexpected.change Unfortunately, emergency succession planning often happens when there is sudden unexpected change such as an unexpected illness, an accident or death of the business owner or senior manager. This often leaves huge challenges for those who are unprepared to take over the business. Although succession planning cannot predict the future, it certainly can help you prepare for it. © government of aLberta empLoyment, immigration and industry6 L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n How to Develop Your Business Succession Plan There are many different approaches to developing a succession plan. Your personal approach will depend on your time and resources. Regardless of the approach, the following section outlines six main steps to help you take action and develop your own plan. You can tackle your plan in bits and pieces, one step at a time. The key is to keep at it until you have developed and implemented those components that are important for the successful transition of your business. Succession plan framework and checklist This checklist helps assess where you and your business are in the planning process. Once completed, you will have a prioritized list of topic areas to develop in your succession plan. Remember, you can break the process into manageable steps review the succession plan framework and checklist template (found in the Appendix or on-line at www. alis.gov.ab.ca/careershop). The following six steps will help you develop your plan. Six steps to building your business succession plan Step.1:.Initiate.discussion.with.stakeholders. Who should you talk to? Begin by speaking with your business partners, your spouse, children, other family members and key stakeholders such as employees and managers to learn what they think and how much they understand about succession planning. Take notes so you can take action based on needs. Family – special considerations Whether your immediate family members play an active role in your business or not, they should be included in the initial planning. This allows everyone an opportunity to voice their opinions and concerns. Your business may consist of family shareholders, family members as employees or children thinking about working for the business. By communicating with them early in the process, you will © government of aLberta empLoyment, immigration and industry6 L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n  ensure that all are heard. As well, roles, responsibilities and expectations can be put on the table. Do you know what Advisor.advice each family member expects from you and the business? i have been practicing accounting since the 90s and can  Finding out now will prevent surprises down the road. make one generalization about business owners planning their According to the Business Development Bank of Canada, exit from their business—procrastination While there are there are many ways you could involve your family: several reasons owners provide—too busy, too early, i’ll never • “Sound them out during a family retreat or in retire—one reason to be proactive is more compelling: tax one-on-one sessions. implications. most small business owners do not understand • Hire an outside consultant to interview family members. the tax implications of selling their business. this is where They may be more willing to talk to an impartial outsider the advice of their professional advisors is key. for example, than to you. if the sale of their business includes the business assets, the land and the building, the owner could be looking at a large • Create a family council to develop a common vision and 3 capital gain. if owners considered future tax liabilities when help draft the succession plan.” growing their business, they could incorporate strategies to To learn more about family business considerations, refer to reduce the immediate tax payments on the sale. this needs the resource section at the back of this publication, where you to be done years in advance. strategies involving corporate will n fi d several publications listed that focus on family. You reorganizations should be discussed with the owner’s will also n fi d a list of organizations that can provide advice professional advisors. taking time to learn how to organize the and direction on transition planning for a family business. business should result in maximizing the return on investment when the owner exits the business. Step.2:.Assess.current.circumstances.of.your. —Owner, Professional Firm, Rural Alberta business.and.take.inventory.. Since most small business owners are planning to use their business to help fund their retirement, it is essential that Business partners you know your current asset base as well as your liabilities. Discussions with all of your business partners are important Understanding your financial position will better assist you in the planning stage. Address the following questions at the in preparing your business valuation and determining the start of your planning process: most effective business structure. It is as simple as making a list of what you own and what you owe, as a starting point. • D o you understand what your partners’ future Your accountant or estate planner can offer other tools and intentions are? advice. • Will there be a buyout? • Is there a buy-sell agreement that needs updating? Step.3:.Develop.your.advisory.team.. Regardless of the size of your business, you will need a team • Should you revise your shareholders agreement? of trusted advisors to help you plan your succession. Your • Are members of your family also partners? team will be as small or as large as your planning priorities • D o your partners have family members involved in dictate. your business? The benefit of having an advisor, whether it be an • What are your partner’s expectations around retirement? accountant, lawyer or business advisor, is to get timely advice. Advisors will also keep you on track. Consider how each of the following professionals can help you with your business. 3 BDC–BusinessDevelopmentBankofCanada. Make it work for your family.  Availablein  the TransitionP  lanningP  rojectat   www.bdc.ca/transition © government of aLberta empLoyment, immigration and industry L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Corporate or tax accountant insurance policy on you? Insurance can support your You likely have either an internal or external accountant that business in several circumstances, including: knows your business. Accountants are fundamental to your • creating liquidity for retirement succession team and should be advised of your planning • funding a buyout intentions. They can help assess your business financial • providing financially for your family upon your death picture so that you can plan your next steps. Accountants can help you with the following: • providing financially for your family upon your critical illness or disability • valuation of your business • pr oviding a business will to ensure immediate continuity • tax liability planning of the business. • estate planning Step.4:.Write.your.plan.. • corporate restructuring of your estate Now you have an idea about preparing a succession plan: • exit strategies. what to do, who needs to be involved and how others will Corporate lawyer be involved. Corporate lawyers can help develop your shareholder The next step is to begin writing your plan. Although each agreements, buy-sell agreements, estate plans and/or succession plan is unique, there are 12 critical components settlement trusts and settle disputes if they arise. They are that create a complete and effective plan. While we have important players in developing your ownership structure provided the critical components in this guide, not all and can advise on legal risks. elements of a succession plan are covered. You may wish to consult with an advisor for more detailed work on your Banker plan. You will want your plan to include everything that is Have you thought about the purchase options for a important to you, your family and your business. Use the successor? Your banker can help you determine how you information you gathered from completing the Succession might financially assist a successor with the purchase of your PlanF rameworkand Checklist (found in the Appendix and business. on-line at www.alis.gov.ab.ca/careershop). Business advisor or succession co-ordinator Personal and business goals and objectives Business advisors allow you to focus on your daily business As you begin writing your plan, you will need to identify while working through the process of planning. Like a what it is you want: your personal and business vision, quarterback on a football team, they facilitate the plays in goals and objectives. Take your time during this step. It is your succession planning. They can also coach you and your important to crystallize what you see for yourself and your family through difficult times during the succession process. business future, even if that is many years away. Insurance advisor Consider these questions when developing your personal Your insurance advisor will help you determine your and business goals and objectives: insurance needs and solutions. Insurance considerations include business insurance, life insurance, disability • What is your personal vision for the future? insurance, critical illness insurance and key person • What do y ou dream of and where do you hope to be in insurance. Did you know your business could hold a life five years? In 10 years? • Would you say you are on track to achieve your goals? © government of aLberta empLoyment, immigration and industry L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n 9 • Where does your business fit into this? • Do you have a vision of the legacy you want to leave? SMART Goals • What r esources do you need to help you and the business get where you want to go? S = Specific: Goals should be clear and state your desired • If you have a successor in mind, does that person have the results. By probing questions around who, what, where, same expectations and vision for the business? when and why, you will be able to move from general to specific goals. SMART goals General goal: To put more money into my pocket when With the information you have collected, determine I leave the business. SMART goals for yourself and your business: goals that are Specific, Measurable, Attainable, Realistic and Timely. Specific goal: To decrease the business tax implications by eight per cent in one year by reorganizing the After you have some clear goals and objectives, the next step company into a holding company and an operating is to consider possible exit strategies. What are your options company. for the successful transition of your business? M = Measurable: How will you measure your desired results? Exit strategy Measuring your progress will let you know if you are on There are several options for leaving your small business. track. Measurables can include days, years, dollars saved or One that commonly comes to mind is putting a For Sale dollars spent. sign in the window. This can be a limiting choice for …decrease business taxes by eight per cent in one year . owners. Unfortunately, if there has been no planning, this A = Attainable: Can you reach the goal you set, given the may be the only choice available. competitive environment and the human, financial and Your professional advisors can give you advice on what will possibly technological resources required? For example, can maximize the value of your business while considering both the business reduce taxes by eight per cent in one year? your personal and business needs. Consider the following as possible exit options. R = Realistic: Is this goal a stretch? Is this goal something the business can do? Is reducing tax implications a true result of Business exit strategy options reorganizing? Goals like this may require professional advice The Business Development Bank of Canada (BDC) has a from an accountant and a lawyer. wealth of succession planning information on their website T = Timely: Does the goal state a deadline? The example states (www.bdc.ca/transition). A BDC consultant explains some one year. Can you develop a time frame to track milestones? common business exit strategies: For example, the goal could be broken into smaller • “P assing the business to another family member. This measurable time frames. A milestone would be: requires identification of likely candidates and then to meet with the lawyer within one month training them to manage the business successfully. This to set up a holding company. could involve some time, depending on the complexity of the business. © government of aLberta empLoyment, immigration and industry 0 L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n • Selling the business. Businesses must be prepared for Business valuation sale so that the owner can maximize his or her return. Before you sell or exit your business, you will want to be Simply making superficial changes to a business at the explicit about what your business is, what you are going last minute and putting it on the market for sale often to sell and how much it is all worth. This might sound results in reduced return. Usually a sale requires a long simple enough, but often business and personal lives are strategic management process that produces evidence of intertwined. When valuing the business, you need to growth potential and is attractive to potential buyers. In consider your business revenues, assets, property, business addition, likely buyers should be identified ahead of time liabilities and goodwill. Goodwill is an intangible asset and alliances or overtures made before the actual event. A that can be difficult to assess. It represents the value of version of selling a business involves simply closing it and a corporation’s brand name, customer service, employee selling a client list, or ‘book,’ to a competitor. morale, expertise and other factors beyond net assets that contribute to the value of the business. Consult an advisor • M anagement buyouts or employee buyouts. Often this is to determine the goodwill value of your business. the first place that owners, who do not have a candidate for succession, look to in order to pass on the business. There are several different methods to determine the value This method is often used when the business owner is your business. You might tackle it on your own. Or, your concerned with continuance of the corporate culture. accountant could provide you with advice on what method Usually, in these cases there are legal processes, such as would be most useful for your business. The method you use arrangement of shares, which must be taken care of first. will depend on the business financial picture, asset mix and business structure. Several books on business valuation are • Takeover or phased exit. This often occurs when an owner included in the resource section of this guide. Here are some wants to leave a business, but does not completely exit. questions to consider: It is also a method for slow transference of a business to a new owner who is still undergoing a training period. • Where is the value in your business? With this method, the owner sells a stake in the business • What is the value of your assets? to a partner and the stake grows as the partner takes on 4 • Do you own property, buildings and machinery? increasing managerial responsibility.” • Have you thought about your business liabilities? • How will you determine what you will sell? General.succession.experience • What is the goodwill value in your business? i consider myself an entrepreneur at heart. i enter into a business arrangement with an exit strategy: sell. my plan is Business structure and organization always to sell out when the timing is right. When you are Are you a sole proprietor? Do you have a partnership with considering the succession of your business, the successor you general or limited liability? Is your business a corporation? select should have similar values. this will ease the process. How your business is organized will depend on the business trust is paramount but often difficult in a succession. Work with maturity and size. Clearly understanding the business professional advisors who you trust are providing advice that is ownership structure and its implications is important when in your best interest. considering your exit from the company. When you plan transition years before your retirement, you can restructure —Entrepreneur, Chemical Distribution and Service, Innisfail and Medicine Hat the ownership and consider all tax implications and legal liabilities. By giving yourself time before exiting, you can improve the operational efficiency of your business and optimize its value. 4 BDC–BusinessD  evelopmentBankof  C  anada. Transition Planning – top questions.  Availableat   www.bdc.ca/transition © government of aLberta empLoyment, immigration and industry 0 L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n   If you were looking from the outside in, would your While planning your estate is a similar process to business business get an excellent bill of health? Are you using succession planning, it also considers all your personal technology to your advantage? Are the processes efficient property. It can include your stocks, bonds, cash, real estate, and effective? Does much of the knowledge of the day-to- business interests, life insurance, retirement benefits, other day operations reside in your head? If you are considering assets and your registered retirement savings. Costs of estate selling your business, you need to record that operational settlements can be high. They could include insurance information and any other information important for settlements, tax liability, fees for professional advisors, as other stakeholders to know. You will want to document well as costs for share purchase, setting up trusts, probate all company policies and procedures. Your records and and more. Your will, enduring power of attorney and documents should be in an organized system. personal care directive are some of the things you will want to consider. Professional advisors will provide you with Tax and legal considerations sound advice on these matters. You will want to get advice about tax and legal matters such You can find more information on estate planning at: as the following: • RBC D ominion Securities website at www.rbcds.com • Tax considerations (select Estate Planning) - W ill your business qualify for the capital gains • Cataract Savings and Credit Union website at exemption? http://develop.danima.com/estate - What ar e your options to trigger the exemption? - What can you do to minimize tax implications? - Will there be an estate freeze? Selecting,.training.. • Legal considerations and.mentoring.a.successor - I s your business set up as a sole proprietorship, for me, owning and operating my business is about partnership or corporation? stewardship. my parents started this business in the ’0s and - Is it a family business? i started working right after high school. i worked in every - Are you selling assets and goodwill or shares? area to learn all aspects of the business. my parents also had me work for other people so i could learn how to work. this is - Do the liabilities get sold with the business? important for several reasons, including developing the respect - Do you have a conflict resolution policy? of colleagues and employees. When i realized i loved the business and wanted to grow with the company, a grooming Estate plan process for leadership and ownership began. it spanned As a small business owner, you likely have a large volume of several years. my parents, as well as my father’s colleagues, assets in your business. While your organizational structure have been my mentors. i learned that it’s important to really may protect your assets, your sudden illness or death could listen and learn from the business owners because so much of be devastating to those who have to piece together your what they know is not written anywhere. for us, the transition estate puzzle. We all think we have time to make a plan for was smooth because my parents prepared me well and i had our estate, but accidents do happen and illness can strike developed the trust of my employees and colleagues. We share suddenly. A plan for your estate’s future will help conserve the same values and vision. i am in a leadership role today and the assets you have accumulated during your business share ownership with my mother. lifetime. If you do not have a plan, someone else may take care of your estate for you. But their plan may not be what —Successor, Exhibit Service Industry, Calgary and Edmonton you had in mind for your business. © government of aLberta empLoyment, immigration and industry  L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Successor selection Your plan will depend on whether you have already selected Although the grand finale of the planning process is passing a successor, whether that individual is an internal or external the torch, selecting a successor is often a difficult task. It is candidate and whether the successor is aware of your decision. also one of the most critical steps of this journey. You will If you have not yet identie fi d a successor, you will need to want to begin considering this years before you exit your search for and select a successor and set timelines for selection. business. Determining what qualities and competencies • Have you selected your successor? your successor needs is a good start. You may have already • What strategies can you use to find a successor? identified a successor (e.g. a family member, employee or an • H ave you developed guidelines to assess the potential outside buyer), but does the potential successor know? It is successor? important to select a successor early in order for that person to learn the business and earn the trust and respect of other • What skills will y our successor need? (e.g. technical, key stakeholders. conceptual and managerial skills). Refer to the section on successor training that follows. • How will you select among potential family successors? Finding.and.keeping.a.successor • How will you select among potential employee successors? one of the critical issues to consider as a small business owner • What criteria will an outside buyer have to meet? in a town is finding someone interested in becoming a business • If you do have a successor selected, have you told the owner. business owners should be planning early and making successor of your intentions? When will you tell the back-up plans in case the first choice does not work out. owners successor? need to put together an incentive package that will attract and • When and how will you inform your stakeholders? keep great employees. my own transition into ownership took several years. i began in my youth as an employee, then became Successor training a partner and now i have full ownership. full ownership took It is not enough to identify your successor. You also want decades. When i realized none of my children would become to be certain that person can successfully take over your my successor, i began grooming a long-time employee. due to position in the business. Identifying your successor’s unforeseen events, this did not work out and i did not have a strengths and weaknesses will help you develop a successor back-up plan. now i am looking at other alternatives for exiting training plan. The plan may include education or training, my business. therefore, i think it is also important to be aware obtaining outside work experience, rotating through the of your options and how each of your options will best help you business to learn all aspects of its operation and engaging in meet your goals for exiting your business. alternatives include a mentoring relationship with key managers. You will also preparing another staff member, advertising the business for find it helpful to have an evaluation plan to monitor the sale or a systematic closing out of the business. successor’s progress. —Owner, Retail Industry, Edson Whether or not you have identified your successor, you can begin identifying core skills and competencies the successor will need. Some companies develop training modules that follow a timeline. Your approach will depend on how complex your business is. • What are the top three technical skills the successor needs? • What other competencies are desirable? • Is further education or training required? © government of aLberta empLoyment, immigration and industry  L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n   • W ould working outside the company help the successor Conflict resolution develop critical skills? As previously discussed, stakeholders interested in the succession of a business include more than the business • Will you have a quick exit or a gradual, phased-out owner. People who may be considered key stakeholders departure? include family members, business partners and senior • What timeline is required to train the new successor? employees. They may have their own interest in the plan. • What is the best way for you to transfer your knowledge Conflict can result when the succession decisions do not or company know-how to your successor? satisfy all stakeholders’ interests. Having a pre-established • Are you prepared to mentor or coach the successor? conflict resolution mechanism will help keep the process moving forward. Contingency plan Whether we own a business or not, many of us do not Your business might already have procedures in place for this have a contingency plan. In case of an accident or illness, situation. If not, you may want to get a copy of Let’s Talk:A a contingency plan will provide the financial resources to guideto  r  esolvingworkplaceconflict . See the resource section ensure your business survives. It informs stakeholders how for ordering information. your business will be looked after and who will be in charge. Timelines Most of us dislike thinking about our own mortality. But Create a timeline to develop and implement your plan to as the owner, your business depends on you showing up keep you on track. Use a simple calendar or any project tomorrow. Consider who will lead your business if you are management tools you are familiar with. While your in an accident tomorrow. By addressing this as a priority timeline should be flexible, it should also provide clear right at the start, you will protect years of hard work. Ask milestones indicating when you have achieved goals, yourself: objectives and major achievements. Consider these questions when planning a timeline: • How will I cover costs of the business and protect my family if an unforeseen event occurs? • How will the timing of your exit affect the rest of the • What could happen to my business and my family if I plan? don’t have critical illness, disability or life insurance? • Have you identified timelines if your exit is a gradual • What ar e my options to pay for the different types of phased-out departure? insurance? • H ave you aligned the timing of your successor • Is there a plan for the flow of life insurance proceeds? development and training with your exit? • How much insurance is required? • What milestones will y ou observe to know you are on track? (e.g. completed Phase 1 of successor training). • Who else should be insured? • H ow long will you remain active in the daily operations of • Who should own the life insurance? the company? • Who should pay the premiums? • Have you committed to an approximate age you want to • Who should be the beneficiary? retire? • Who would lead the business if I w ere in an accident tomorrow? • Who is awar e of the plan and knows where to find the documents? Having a contingency plan helps provide peace of mind © government of aLberta empLoyment, immigration and industry  L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Communications plan Importance of communicating your plan Communicate your succession plan to key people in A communications plan is a strategy for informing your business. Determine how you are going to tell your your family, employees, suppliers, customers and other employees that you have made a critical decision about your stakeholders about your intentions. Here are two compelling exit and about the successor you have chosen. This can be reasons for developing a communications plan: an emotional time for the whole company. You will want to • Responding to fear of the unknown. keep employee morale high as the transition occurs. Notify Employees, suppliers and customers can be affected by your suppliers and customers about your plan, about how the sale of a business. A business will not be attractive if it business will carry on and about the terms of transition. begins to lose customers or uncertainty is created among Introduce your successor to key people in a timely fashion. key stakeholders. Communication about the process can dispel any fear your key stakeholders may feel. • E nsuring clear expectations. Advisors.are.key.to.succession.planning A written communication plan states how, when and what media will be used to announce your exit and my company recently had our annual retreat and succession the transition of the business ownership. It explains planning was on the agenda. We hired a business advisor how you want to proceed with your business transition who acted as a facilitator for the retreat and he got us announcement. This will help ensure your plan is thinking and talking about issues that we wouldn’t have executed as you wish. You may include copies of on our own. our business advisor meets with us regularly announcements with directions for where and when to help us move towards our succession goals. this process notifications should be placed (e.g. in the company is extremely valuable to any business owner thinking about newsletter, local newspaper or mailings to suppliers). transitioning the business to family members or other employees. Having a good accountant and lawyer is also Step.5:.Implement.your.plan. important. our business transition is planned over five years It’s important to get started. Some of the components take and we are working in phases. We are currently developing more planning than others, so you may begin implementing training modules for the new successors. the leadership parts of your succession plan before the entire plan is will transfer to both of my kids. the ownership transfer will complete. include freezing shares to make my daughter an owner. my son is already a shareholder. my shares will change to Use the Action Plan and Progress Chart to help you track preferred. Working with advisors keeps you on track. your progress. i don’t think you can do succession planning Step.6:.Review.and.modify.your.plan. without input from your advisors. Do not let the dust settle on your plan once it is developed. —Owner, Employment and Training Industry, Red Deer Things change quickly in the business world and even in one’s personal life. Review and revisit your plan at least once a year. © government of aLberta empLoyment, immigration and industry  L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n  5 Next Steps Your next steps depend on how much work you have already done. By reading this guide, you have raised your awareness of both the importance of preparing your business for succession and what it takes to get started. Completing the checklist will help you develop a structured succession plan. By planning now, you are positioning your business to receive maximum value, as well as selecting and developing future leadership so your legacy can continue according to your vision. Your next steps depend on how much work you have already done. Regardless of where you are now in the succession planning process, keep going. Plan to transfer your business in manageable stages. Start small and finish strong. Canadian business owners who have a succession plan in place strongly agree that it has been a worthwhile investment of their time. © government of aLberta empLoyment, immigration and industry 6 L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Resources for Employers and Business Owners General business publications Alberta.Employment,.Immigration.and.Industry. To get your copy of the following free government publications and posters: • Order or download a copy from the Alberta Learning Information Service (ALIS) website at www.alis.gov. ab.ca/careershop • Contact the Learning Resource Centre - Phone: (780) 427-5775 - Fax: (780) 422-9750 • Call the Alber ta Career Information Hotline at 1-800- 661-3753 toll-free in Alberta or (780) 422-5283 in Edmonton. • V isit an Alberta Employment, Immigration and Industry service centre. Call the Hotline for information about the centre nearest you. Publications and posters Alberta Careers Update 2004 This book looks at the global and provincial trends affecting Alberta’s economy and society. These trends have an impact on occupations in the province and can affect career planning decisions. An Occupational Outlook section includes projections for more than 500 occupational groups. Better Balance, Better Business: Options for work-life issues The often conflicting demands of work and personal time commitments of employees can create stress and other issues for both employers and workers. This publication presents employers with the business case for why they should care about this issue, ways to improve the situation that will benefit both employers and employees and ideas about making useful changes. Employing a Diverse Workforce: Making it work (available Fall 2007) Employing a diverse pool of workers makes good business sense. This book provides employers information about how to support employees diverse in age, race, gender, physical ability, values, religion, culture and experience. © government of aLberta empLoyment, immigration and industry 6 L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n   Employment Series for Persons With Disabilities: Safe and Healthy: Tips for employers A guide to managing an aging workforce Today, more and more employers are hiring persons with This publication examines perceptions and realities about disabilities. This book provides employers with a practical the capabilities of the older worker and offers employers business approach, including numerous resources and ways to keep workers of any age safe and healthy on the job. answers to typical concerns and questions. Skills by Design: Strategies for employee development Finders & Keepers: Recruitment and retention strategies This publication builds the case that any business, no This publication provides proven strategies and practical matter how small, should have the tools and know-how to tools to help small- and medium-sized businesses attract, do regular inspections, maintenance and enhancement of recruit, select and retain employees. Finders&  Keepers employee skills. It features the why, how and practical what condenses best practices and current research into practical of developing employee skills. and affordable steps. Additional resources and templates X-treme Safety: help employers meet the challenge of effective recruitment A survival guide for new and young workers and retention. Using the analogy of X-treme sport, this survival guide for A Guide to Rights and Responsibilities young, inexperienced workers is packed with information in Alberta Workplaces about Alberta’s workplace health and safety regulations and If you are new to the workplace or an employer in a small- employment standards. or medium-sized business, this publication can help you find Tip Sheets answers to questions about employment standards, health A number of tip sheets—short, easy-to-read articles on and safety, human rights and workers’ compensation. A list career, learning and employment topics—are available on of phone numbers and websites direct you to contact people the ALIS website. Search alphabetically or by audience and information to help you stay within workplace rules. (including employers), keyword or topic. A complementary poster, Sourcesand  Resources: Workplace Website: www.alis.gov.ab.ca/tips rightsand  responsibilities , highlights key workplace contacts. Occupational and labour market information Let’s Talk: A guide to resolving workplace conflicts The conflict resolution methods presented in this OCCinfo publication are helpful for employees and employers of This section of the ALIS website provides more than 530 large, medium and small organizations, whether it’s a private occupational profiles, including information on duties, sector company or a not-for-profit association. Let’s Talk working conditions, salaries, employment outlook, personal contains information on how to handle situations internally characteristics and required educational qualifications. and where to get outside help. Search by title, subject, interest or industry. Website: www.alis.gov.ab.ca/occinfo Labour Market Information for Your Business: A practical guide Wage and salary survey This publication presents a business case for achieving This biennial survey provides wage and salary information greater productivity by using labour market information. for Alberta employees by occupation, geographic area It includes a generic model for researching, analyzing and and industry group. It also provides information on top using such data, case studies that point out common ways to occupational vacancy rates by the eight economic regions. benefit from labour market information and where to find Website: www.alis.gov.ab.ca/wageinfo current, reliable information. For other labour market information, visit the Alberta Employment, Immigration and Industry website at Positive Works at Work (poster) www.employment.gov.ab.ca/lmi Looking for a little inspiration to blend with the perspiration around the worksite? This two-poster set has positive messages about attitude and getting along in the workplace. © government of aLberta empLoyment, immigration and industry  L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n L e a v i n g y o u r s m a L L b u s i n e s s : y o u r p L a n f o r a s u c c e s s f u L t r a n s i t i o n Other relevant resources On-line.resources Meyers Norris Penny www.mnp.ca BDO Dunwoody LLP  BusinessS  uccession:A  G  ameof  Options  Ontario Ministry of Agriculture, Food and Rural Affairs  www.bdo.ca/en/images/BDONewsletterEnglish.pdf  Componentsof  a  FarmS  uccessionP  lan   www.omafra.gov.on.ca/english/busdev/facts/04-073.htm SuccessionP  lanningforFamilyB  usiness www.bdo.ca/library/publications/familybusiness/ Predictable Futures – Family Business Centre succession/planning1.cfm www.predictablefutures.com Business Development Bank of Canada PriceWaterhouseCoopers  Makeit   Workfor   YourFamily  www.pwc.com/eng/main/home  www.bdc.ca Sun Life Financial  TransitionPlanning—BDC   BusinessSuccessionP  lanning,Owners  G  uide   www.bdc.ca/transition www.sunlife.ca/advisorsite (Under Strategies & The Business Link Concepts, choose Business Succession Planning) www.cbsc.org/alberta Publications Canada-Ontario Business Service Centre TheC  anadianSmallB  usinessOwner  ’sG  uideto  Financial www.cbsc.org/ontario Independence. Barry and Mark NcNulty. Toronto: Insomniac Press, 2006. Canadian Federation of Independent Business TheDefinitiveGuideto  Retiringfr  om YourB  usiness. RBC  SuccessionCanBreedS  uccess  Royal Bank. Toronto: General Content Corporation, 2002.  www.cfib.ca/research/reports/rr3007.pdf ExitRight:A  guidedtourof  successionplanningfor  families  in    SuccessionP  lanning Tips businesstogether  . Mark Voeller, Linda Fairburn and Wayne www.cfib.ca/research/businfo/pdf/din0551.pdf Thompson. Summit Run Inc., 2002.  Isy  ourbusinessreadyfor  y  ourretirement?Keyquestions  for   TheFamilyB  usinessSuccessionHandbook. Mark Fischetti SMEsr  egardingsuccessionplanning   (Ed.). Philadelphia: Family Business Publishing Co., 2001. www.cfib.ca/pdfs/succession_qa_e.pdf FamilyB  usinessSuccession:TheFinal Testof  Greatness. Canadian Heritage Craig E. Aronoff, Stephen L. McClure and John L. Ward.  SuccessionP  lanningforBookPublishers:AnOverview  Marietta: Business Owner Resources, 2003, 2nd ed. www.pch.gc.ca/progs/ac-ca/pubs/succession/index_e.cfm Investingin YourF  uture:Buildinga  SuccessionP  lan. Cataract Savings and Credit Union Canadian Federation of Independent Business. Toronto: http://develop.danima.com/estate CFIB, 2006. Members of CFIB can order this publication at (780) 421-4253 or (403) 444-9290. Family Business Institute www.familybusinessexperts.com KeeptheF  amilyBaggageoutofthe  FamilyB  usiness:A  voiding theSevenDeadlySinsThat  D  estroyFamilyB  usiness. Quentin Industry Canada J. Fleming. New York: Simon & Schuster, 2000.  Managingfor  BusinessSuccess  Selling YourBusinessSuccessfully: Tips,S  trategies,and   Tools. www.strategis.ic.gc.ca/sme-management Rexford E. Umbenhaur, III. New York: John Wiley and KPMG Canada Sons, 2003.  Successionor  S  ale  TheSmallBusiness ValuationBook.  Lawrence W. Tuller. www.kpmg.ca/en/services/enterprise/issuesSale.html Holbrook: Adams Media Corporation, 1994. © government of aLberta empLoyment, immigration and industry