Succession Starts Now

For many entrepreneurs, a business represents years, if not decades, of hard work, sacrifice and careful planning. Yet when it comes to planning for what happens next, business succession is often left until it’s too late. Whether your goal is to pass your business to the next generation, sell it to new owners or simply protect the legacy you’ve built, having the right plan in place can make all the difference.

In this edition, Kayla Thompson, partner at Duncan Craig LLP and a Trust and Estate Practitioner (TEP), shares practical advice on when to begin succession planning, common pitfalls to avoid and how your business fits into your broader estate plan.

Why should business owners begin  succession planning sooner rather than later?

The unfortunate reality is that time gets away from us. You don’t want to wait until the cracks are already forming — whether that is in relation to your health, or relationships with families and business partners. Another key point is that most business succession strategies will be heavily tax focused and some strategies simply must be started years in advance. I have sadly seen too many tax savings opportunities lost entirely because the process started too late.

What’s one of the biggest misconceptions you encounter about business succession planning?

The biggest misconception is believing that you must have all of the answers before sitting down with a professional. In truth, business succession planning is a process — one that will take time and may change as the years go by. It is okay to not know exactly where you want to go, and when you want to do it, before sitting down to talk. Think of that first meeting like a brainstorming session — your advisor will gather information and guide you to the next  stage at your own pace.

How does a business succession plan fit into someone’s overall estate and financial planning?

Business succession does not happen in a vacuum, and the goal is to have all of these areas working cohesively. For example, is your business being gifted to the next generation or being sold to a third party? Is there a Shareholders’ Agreement in play? Do you have children working both inside and outside of the business, and how will your estate plan work to treat them equitably? From a financial perspective, does this plan leave you with enough to fund your retirement, and provide you with the cash flow you need at the right time? Do you have enough non-business assets to deal with the taxes that will be realized on death?

What are some of the most common mistakes business owners make when preparing to transition or exit their business?

Not having a Shareholders’ Agreement is a big mistake. Even without business partners, a Shareholders’ Agreement is a key tool in the transition to the next generation. Think of it as setting the rules in advance for the future  layers and ensuring that your estate plan is actually carried out. It is also worth its weight in gold when relationships become strained, which is a common occurrence during a business transition. A well-drafted Shareholders’ Agreement is also a key component in ensuring that funds, especially life insurance, flow as they are supposed to, to the right people, at the right time.

What’s one piece of advice you would give every business owner, regardless of the size of their business?

Choose your professional advisors carefully. It is worth making sure you have surrounded yourself with experts in their fields. Other than their subject matter expertise, the best advisors are those that are team-oriented and  communicate well, because everyone will need to co-ordinate with each other to avoid becoming siloed. For example, if you are looking for a new lawyer, ask for a referral from your accountant or financial advisor — they will recommend someone they already work well with.

Interested in learning more? This year, our annual Wills Week returns October 5-9, offering 15 free information sessions on wills, estate planning and charitable giving, presented by leading legal and financial professionals from across Edmonton.