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Succession Planning: Make a Smooth and Profitable Exit

Succession Planning: Make a Smooth and Profitable Exit

Have you ever thought about what will happen to your business after you decide to retire? Succession planning – proactively preparing for the sale of your business – is crucial if you want to make a smooth and profitable exit. Entrepreneurs with a good succession plan in place are usually better off in their retirement and their businesses are more likely to survive. The Thunder Bay Community Economic Development Commission (CEDC) offers a free and confidential listing service where retiring entrepreneurs can list their businesses for sale. The CEDC helps with succession planning so that retiring business owners can make a clean exit without shutting down operations.

Only 17% of Canadian family businesses have a formal succession plan, according to the 2014 Deloitte Family Business Survey.

Succession Planning

Piero Pucci, Supervisor – Economic Development at Thunder Bay CEDC estimates that well over 100 businesses in Thunder Bay will be approaching retirement in the next five years. Not finding investors to resume operations could mean a lot of empty storefronts, lost jobs, and a decrease in tax dollars.

There are many payoffs of having a formal succession plan. Most desirably, it can significantly increase the value of a business. Piero says, “Owners that plan their retirement in advance have more time to prepare their businesses to be sold and can afford to wait for the right buyer.”

In addition, the preparation that goes into succession planning makes the business easier to sell, and increases its chance of surviving in the long term.

Piero recommends businesses start to formulate their exit strategies about five years from retirement. “Planning ahead can allow you enough room to ensure that your financial goals match up with what your business can provide you.” He also advises that entrepreneurs who rush into the sale of their businesses can create skepticism and actually lower the value of their businesses. “When buyers see that the owner is in a rush to sell the business, it can raise flags, and make the deal less attractive. Buyers want to acquire a business in good standing and they look for transparency.”

While it’s great to explore all advertising options, many retiring entrepreneurs like to maintain privacy and keep the sale of their businesses unpublicized. Striking a balance that limits potential buyers but doesn’t dissuade clients and customers often involves connecting with industry insiders. “I encourage businesses looking to sell to talk to their accountants, bankers, and lawyers because those are the people who are well connected with investors, entrepreneurs, and other industry affiliates and can seek out potential buyers.”

Particularly in a specialized industry, it is all the more necessary to reach out to those contacts as the pool of potential buyers is small, depending on how much knowledge, skills, and experience is required to assume those types of enterprises.

From the buyer’s perspective, there are advantages to acquiring a business. A solid customer base is a definite perk and established financial statements and proven track record of profitability are a favourite among banks. Access to credit is easier and many of the challenges that come with a new venture have already been met. “It may cost more to purchase an established business than it would to start from scratch, but you’ve got cash flow already in place and there’s generally lower risk.”

For businesses looking to sell, an effective way to smooth out the process is to arrange a slow transition in which both parties manage the establishment together for a short period of time before the current owner officially exits the business. This strategy is optimal because it familiarizes the client base with the new management, and helps the future owner learn the ropes and avoid mistakes. “Many businesses will work with the buyers for six months to two years to ease the transition. This can happen before or after the business changes hands. It’s good for clients, and it’s good for the business.”

A local business owner (who wishes to remain anonymous) worked alongside his predecessor for roughly six months before taking full ownership of the practice. “Working with the previous owner definitely helped me to get to know the job and the clients before I started running the place by myself. I was able to assume all operations and maintain the client base seamlessly.”

The Thunder Bay Community Economic Development Commission (CEDC) offers a free and confidential listing service which includes assistance in writing the listing as well as free consulting and advice in selling your business. Contact Piero Pucci at ppucci@thunderbay.ca or (807)625-3965 to make an appointment or visit www.thunderbay.ca/BusinessOpportunities. There are currently 17 businesses for sale on the CEDC Business Opportunities website.

Thunder Bay CEDC/Thunder Bay & District Entrepreneur Centre





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