Preparing an Exit Strategy

Canadians are now just beginning to realize that retirement of the baby boomers is not just a matter of an aging demographic. In the SME sector, their retirement over the two next decades also poses critical economic issues concerning the transfer of wealth. Estimated at between $1 trillion and $4 trillion in Canada alone, this will be the single biggest transfer of ownership and assets in Canadian history. Given that Canada’s SME sector employs more than 90% of the private workforce and is the primary contributor of job and economic growth, a smooth transition from one generation to the next is essential. Yet trends suggest that less that 50% of SME business owners now heading for retirement have taken the steps to properly prepare an exit strategy.

In the absence of an effective succession plan, business owners often fail to maximize the value of their business before they put it up for sale. This can force owners to sell at a discount, transfer the business to inappropriate successors, or close the business entirely. This does not only put the future of business owners at risk, but it can potentially impact the millions of Canadians employed in the sector. A successful intergenerational transfer of wealth is critical to the health and well-being of communities everywhere.

An effective succession plan reflects the unique circumstances of the business and the personal goals of the owner. Ideally, it is a process that is initiated at least 3 years prior to the planned exit date. Gone are the days when it can be assumed that family members are able and willing to take over - or when resale is simply an informal agreement between a buyer and seller.

Succession planning should not be a one-stop exercise. It should be an on-going planning process that is regularly updated, amended, and revised. This includes an estimate of what the business is worth, analyses on all aspects of internal (business) and external environments, the various options and strategies available to the owner, and an action plan that would provide for increased marketability and opportunity for resale. If for retirement, then the plan should also contain a retirement timetable and estate plan.

Altec Global Capital Inc. and LM Johnston Consulting have assembled a team of professional service providers that can help with all aspects of your succession planning needs. See our service description and our article at  Troy Media.