From the Atlantic Wood monthly Bulletin, December 2011 – Mr Sid Watts editor

Planning to exit your business is not nearly as much fun as building it: but, the day will come when it is time to move on. Succession planning or Exit planning is one of the things most successful entrepreneurs in Canada do not do well. It is a fact that only about 25 % of all small business owners in Canada have a succession plan. Frankly, I even think this number is high.

The populations in Canada is aging, and guess what, so are the business owners in the wood manufacturing sector in Atlantic Canada. You can’t do anything to stop the hands of time but we can put some thought into how and when you can do something to make the transition from being the owner, to being the retired owner, of the business you spent a lifetime building. Getting a handsome cheque for your business is something that most owners dream of to ensure their comfortable retirement. Having the whole thing fall apart because of poor planning can be devastating.

So what are some of your options? There are several ways you can exit your business. You can sell it to an outside company or individual. You can transfer it to a family member. You can sell it to a partner or employee. You can close it and walk away. Or you can go to work every day and never really be sure of what to do. The best time to start planning to exit your company was in the first year you started it. The second best time is today! So if you haven’t started this important process yet, today is the day to get at it! Most business owners build up equity in their company knowing that someday they will want to benefit, financially, from their hard work and good decision making.

But just as important as having a plan to build your business you should have a plan on how you will recover the equity that is in your business. It is not nough to hope that someone will come along on the day you want to retire and make you a sweet deal. That happens sometimes and we hear about these Cinderella stories but they are few and far between. If you decide to simply close the business then you may not get much of a reward for your years of building the company. The used machinery and buildings may be worth something but perhaps not as much as an ongoing business. Besides, there are employees who may be depending on that pay cheque and most owners do not want to leave them out of work. That’s another reason why it is better to sell or transfer the business rather than simply close it. If you plan ahead a little you may consider taking a much larger pay cheque yourself in the later years. I’m not suggesting to run the company into the ground but rather to use the profits that would normally go into expanding the company as your reward for years of making the company what it is today.

Selling the company out right may be the strategy you want to follow. You have to make your company attractive to a competitor or to a company in your area that is growing. It is often a good strategy for growing companies to acquire capacity and markets rather than slowly building and in the process compete against you. If selling to an outside buyer is your strategy remember you must make your company look attractive to a potential buyer. You can target a potential buyer and try to make your company a good fit for their expansion.

You could sell to a partner or to an employee who knows the business. With an inside deal like this you can agree to terms and even stay on to help in the transition.

If you are considering selling to an employee then get them involved in the management level at an early stage. Waiting too long can leave the potential new owner with too much to deal with and the whole deal could fall through. The whole idea here is to PLAN. Many owners want the family business to remain as a family business with hopes of one day passing on the company to a son or daughter. When a business is being handed from one generation to another there can be a lot of challenges. After all, it is not just a business; it is the life’s work of the current owner. A lot of pride and emotional connection comes along with this exchange and this can make some decisions more difficult. For example, if there is more than one child it can make the process very uncomfortable and may make some family members feel cheated out of something they felt was coming their way. Do it early and find ways of making things equitable for all of the family members. This includes the current owner, who should go to an outside source to get the company fairly valued. Entrepreneurs are often bad at setting a fair market price on the business they built up.

The bottom line is “Get Started!” Set some goals and objectives and identify your retirement goals. Involve family members and key personnel. Make decisions that will help to guide you. Identify your potential successor and depending on the route you have chosen, provide some support and training to identify successor. Identify the role of the retiring owner, especially if the company is being handed down to the next generation. Most owners like to stay involved but at reduced hours. Have the business professionally valued, no matter which succession strategy is chosen. Create a written Exit Strategy. This can and should be reviewed from time to time to make sure it is still valid. Like every plan it is a fluid document that can be changed as circumstances change. But also like every plan, it is a good guide to lead you to good strategies and decisions.

Every owner knows the day will come when it is time to leave. So why not plan ahead. Don’t leave it up to “chance” to control your future. Have a vision, make a detailed plan and share it with others. This is the best way to make the transition from a business owner to a happily retired business owner, ready to take on new and interesting challenges in life.

Sid Watts – Atlantic Wood Monthly Bulletin December 2011