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Plan your exit strategy well in advance

The topic of retirement comes up quite regularly these days due to the huge population of baby boomers closing in on retirement.

The topic of retirement comes up quite regularly these days due to the huge population of baby boomers closing in on retirement.

The headlines are sometimes alarming but quite clear. The core messages are the need to plan, and well in advance.

If you are a business owner, retirement is even more complex.

As well as planning for a comfortable level of retirement income, the questions of how to exit your day-to-day role and what the future holds for the business become principle issues.

Succession planning allows for the smooth transition of leadership in a company.

Simply put, this plan allows the owners to transition out of a business while protecting business interests.

What is your vision for the future? Who will eventually take over? Will you transfer ownership, or sell outright? Is it possible that the business will eventually close? How would sudden life events affect the business?

A comprehensive plan should identify strategic business goals while factoring in what is best for you and your family.

If the goal is to sell the business at a profit it’s important to know what return on investment is expected. Perhaps the plan is to establish a legacy by ensuring the business remains in the family.

It is common that the owner remains involved in the business at a distance, which means securing qualified management.

Management and ownership are two distinct areas.

Ideally, the business has solid systems in place and a trustworthy team able to run the operations.

Occasionally, one person or even a group of people already exist in the company who are capable of assuming leadership.

If there is no internal management capability, then the business must recruit for the position.

Putting a family member in charge can be a viable option if the person tapped has the knowledge and experience of the company from the ground up. Often, the ability does not match the standards of the founder.

The shift from generation to generation can create major problems that some companies cannot overcome.

In a family-owned business, succession can be a very emotionally charged issue. Statistics from the Canadian Federation of Independent Business state that only 33 per cent of family-owned businesses survive a transition from the first generation to the second.

This figure is reduced to less than 15 per cent when transferred to a third generation.

There are many ways to be fair and equitable and still implement what is in the best interest of the business.

Always seek advice from experts that specialize in business succession planning, and be sure to include family members in the discussions.

Experts advise that succession planning should begin 10 to 15 years prior to retirement.

In fact, an exit strategy should be part of the overall business plan.

The company’s structure and specific situation requires professional advice. The successor(s) must have adequate training and provide evidence that they are able to assume responsibility and meet the expectations and goals of the company.

Many business owners don’t have a clear idea of where they want the business to be in five years, let alone know what their exit strategy looks like. What you ultimately intend to do is also critical to the future of employees you are responsible for.

ActionCoach defines a business as a “profitable, commercial enterprise that works without the owner.” Is your business able to operate without you?

Always seek professional legal and financial advice to minimize tax implications and maximize potential returns.

No matter what plan becomes reality, planning well in advance will ensure that you reach your intended goals.

ActionCoach is written by John MacKenzie of ActionCoach, which helps small- to medium-sized businesses and other organizations. He can be contacted at johnmackenzie@actioncoach.com or by phone at 403-340-0880.