Succession planning is a topic that business owners tend to put off. You've worked hard to build your business, and the thought of passing it on to someone else can be daunting. Succession planning is a critical aspect of responsible business ownership that can have a profound impact on the future of your company. When the time comes, handing over the company with a careful exit strategy can help you keep the value of your business – and your legacy.

Why is succession planning important?

Succession planning is a critical strategic process for several compelling reasons. Foremost is the ability to mitigate the numerous risks that often accompany a transition in leadership. Having a well-thought-out succession plan can serve as a safeguard against the pitfalls that can lead not only to a failed transition but, ultimately, to the downfall of the business post-transition.

Here are some of the additional benefits of a succession plan:

• Risk Management
• Maintaining a service for your community
• Building value for your business
• Providing financial security for your family and stakeholders
• Dealing with unexpected events (illness, accident, or death)
• Peace of mind

When to start your succession plan?

Starting a succession plan for your business is a proactive and forward-thinking strategy that should ideally begin well in advance of any anticipated need for a transition. The earlier you start planning, the more time you have to identify and groom potential successors, develop a comprehensive plan, and make any necessary adjustments.

Ideally, succession planning should begin at least 3-5 years before you intend to retire or step down. Here are some key considerations for when a business owner should start a succession plan:

• Leadership development: Identifying and grooming potential successors within your organization takes time. You'll want to provide opportunities for key employees to gain the necessary skills and experience to step into leadership roles.
• Family business dynamics: In family-owned businesses, succession planning can involve navigating complex family dynamics. Starting early allows for open communication and the resolution of potential conflicts.
• Tax and financial considerations: Succession planning can involve financial and tax considerations. Starting early gives you more time to implement tax-efficient strategies and make any necessary adjustments to your financial portfolio.
• Market conditions: External factors, such as economic conditions or changes in your industry, can impact the timing of a transition. Having a plan in place can help you respond effectively to these conditions.
• Life events: Life events can be unpredictable. You might experience health issues, personal circumstances, or changes in your goals that necessitate a transition earlier than expected. Having a plan in place can provide peace of mind and preparedness for such situations.

How to start a succession plan?

To get started, you need to answer key questions like when do you want to exit? Are there any natural successors?  The best approach is not to do it alone. Professionals such as accountants and lawyers are  important to the success of a small business, including its transfer to another owner. They can provide knowledge and expertise in areas where you may have little experience.

By working with Kawartha Credit Union, we can help structure your plan and connect you to other professionals who will help you navigate the path to a smooth transition.