Are you ready for the silver tsunami?

Succession can feel so far away when you’re in the throes of building a business. But not having a plan can be the difference between a smooth and successful transition and closing your doors for good.

Here’s a summary of the succession knowledge our advisor dropped over the course of this 15-minute podcast.

From afterthought to top of mind

A recent report from MNP, the Succession Readiness Report, analyzed survey responses from more than 550 Canadian business owners. And it demonstrates just how widespread this issue is — succession wasn’t top of mind for owners. For instance, about 64.1 percent of owners have thought about their business exit objectives but haven’t put anything in writing or created a plan.

This statistic indicates that owners are thinking about their future but haven’t taken action.

A decade ago, succession wasn’t even on the radar as something business owners talked about with business advisors. The conversation was more focused on building than on winding down. But fast forward to today, and the conversation has shifted to thinking about things like timelines, goals, potential successors, and business value.

But thinking only gets you so far. It’s not the same as acting on it. The MNP report highlights this critical gap. And without action, businesses risk being undervalued, sold under pressure, or shutting down.

Succession impacts business growth

Succession uncertainty doesn’t only impact the end of your business, it can slow your growth in real time.

Why? Well, when you’re not clear on the future, you may hesitate to invest, to expand, or to take risks.

In a recent Statistics Canada study, declining business dynamism was also thought to be associated with Canada’s slowing productivity growth. Entry and exit rates for business ownership have been steadily declining from over 15 percent in 2006 to 12 percent in 2020. Part of this slowdown may be tied to owners unsure of their next steps as they get close to the next phase of their business.

At the end of the day, without a clear plan in place, uncertainty can trickle in. And any hesitation may impact the performance of the business.

Start sooner rather than later

Here’s the reality: the earlier you start succession planning, the better.

That doesn’t mean drafting a 50-page document while you’re building your business. In the early years, a simple outline can be enough to get started.

Start by considering the big picture:

• Do you want to transition to family?
• Could your management team or employees take over?
• Does selling to an external buyer make more sense?
• Or is it a combination of these models?
• What would happen to my family and business if I was unable to work?

It’s totally normal if your answers to those questions shift as your business grows but writing them down gives you a starting point. From there, the key is to revisit the plan every year. Families grow, businesses evolve, market conditions change, your plan should evolve too. Think of it as a fluid document.

So, what does a good plan look like?

A strong succession plan doesn’t just come together overnight. Here’s a real-life example that our advisor shared on the podcast:

A business owner started early by sketching out the different off ramps: selling to family, selling to employees, or selling to a third party. For years, the owner and advisor revisited and updated this simple, big picture plan.

As the business and family grew, the plan became more detailed. Today, they are weighing whether the third generation will take over or if some key employees will transition to ownership. Interestingly, the strategic third-party sale remains part of the conversation. But mostly to reaffirm their alignment with the other two options, which reflect their values as family members and business owners.

This example shows how a plan can start small and grow more complex over time.

What you risk by standing still

When you put succession planning off, there are some obvious risks, like losing value when it’s time to sell. But there are also a couple of not-so-obvious ones.

First: the impact on employees. Many Canadians work for small businesses. When one closes, there are livelihoods affected. Your employees deserve stability and succession planning can help achieve that.

Second: the impact on your family. Business and family are often intertwined and without a plan, stress and conflict can start to spill over. You don’t want your business, what’s meant to be a legacy or a marker of security, to become associated with tension or family conflict.

What are your options?

Sometimes, your family wants to take over, but they aren’t quite ready. In these cases, education and training should be the focus. Take this time to assess skills, identify any gaps, and create a development roadmap to help them along their journey to leadership.

Other times, it may make more sense to bring a key employee into ownership through an employee ownership plan. This gives employees a stake in the business, helping to protect jobs and keeping company culture alive and well.

Increasingly, small business owners are looking at hybrid models. Maybe part of the business transfers to the next generation and part goes to an employee.

The right succession model for you really depends on your objectives, as well as the unique needs of the business. This is one reason why it can be helpful to work with a third-party advisor — they’ll understand the range of options available to you and how each one could fit into your plan.