For all our clients, we create a comprehensive holistic financial plan that outlines how they will achieve key financial goals like retirement and leaving a legacy for their loved ones. This type of plan addresses tax planning, investment planning and estate planning. For business owners, a significant amount of your net worth is tied up in your business so important financial planning questions are: “What is the value of my business, how can I convert that to some type of retirement income, and how much do I need?” This is a question we address with our business owner clients and a key component of that is getting an idea of the value of their business.
One of the universal challenges for our business owner clients is how and when they exit their business. Will there be continuity of the business or will the business cease when they leave? If the business is to continue, a succession plan is important. The value of a business can be enhanced by having key executives and employees in place.
Succession planning requires identifying and developing potential leaders within or outside your organization who can step into critical roles when current leaders leave, retire, or otherwise cannot perform their duties.
Here are four reasons why it is vital:
- Continuity: Succession planning ensures that your business can function effectively, even in the face of unforeseen circumstances or sudden departures, including your own.
- Leadership development: It provides a structured process for developing leadership skills within your organization, which can enhance overall performance and morale.
- Risk mitigation: By having a succession plan, you reduce the risk associated with a sudden leadership vacuum.
- Value preservation: For small and medium-sized businesses, particularly family-owned ones, succession planning can be vital to preserving the value of the company for future generations.
Identifying potential successors
- Assess skills and potential: Start by identifying employees who have the skills needed for key roles and show potential for growth and leadership. Look for individuals who embody your company culture and values, demonstrate strategic thinking, and have a solid commitment to the organization.
- Consider multiple candidates: It is wise to identify more than one potential successor for each key role to provide options if someone leaves unexpectedly or turns out not to be the right fit.
- Do not overlook non-family members: In family businesses, there can be a tendency to consider only family members as potential successors. However, non-family employees might also be excellent candidates and should be considered.
Preparing potential successors
- Training and development: Once potential successors are identified, invest in their training and development. This could involve mentoring, job rotation to broaden their experience or external leadership training programs.
- Provide feedback and support: Regular feedback is essential for development. Constructive feedback can help potential successors understand their strengths and areas for improvement.
- Gradual transition: Plan for a gradual transition where the outgoing leader can mentor the successor. This can help ensure a smooth handover and allow the successor to gain confidence and experience.
Succession planning is a crucial aspect of strategic planning for small and medium sized businesses. By identifying potential successors early and investing in their development, you can ensure your business’s continuity and long-term success. This will help provide the foundation for a successful financial plan to address your future income needs and other financial goals.
For small businesses a business valuation from a Chartered Business Valuator may be helpful and you can discuss this with your accountants. We often coordinate our efforts with our clients’ accountants when developing the financial plan. For mid-size businesses, as part of IG Private Wealth Management, we work with our IG Private Company Advisory (PCA) group which provides strategic and transaction advisory services for businesses with annual sales between $20 million and $500 million. That service includes:
- Selling Or Acquiring a Business: Sourcing potential buyers or acquisition targets for your business can be complicated. Our PCA advisors provide expertise in deal sourcing, due diligence, company valuation and negotiation to help you take advantage of growth opportunities and realize maximum value.
- Strategic Advisory: Benefit from deep industry knowledge and strategic insights and make informed decisions on crucial matters such as market entry, expansion strategies, restructuring, and succession planning.
- Raising Capital: PCA advisors will guide you through the process of obtaining capital to grow your business. They specialize in helping you secure debt, equity or mezzanine financing, or alternative funding sources on terms that suit your specific situation.
We can help you plan for what happens next. A successful transition of your business is a critical aspect of your financial well-being. We can help you navigate the key decisions to help you achieve your goals and help you make better financial decisions before and after the transition of your business.
Steve Gobel & Kevin Sampson are wealth advisors with over 30 years’ experience each in the financial planning advisory area.
They use their extensive knowledge in the areas of Retirement, Investment, Tax and Estate Planning to develop comprehensive financial plans for business owners and professionals that help them achieve their financial goals. Discover how we can help unlock your company’s potential.
Steve Gobel CFP RFP RRC CEA TEP, executive financial consultant
Kevin Sampson CFP RRC CEA, senior financial consultant
Investors Group Financial Services Inc.
This is a general source of information only. It is not intended to provide personalized tax, legal or investment advice, and is not intended as a solicitation to purchase securities.
Steve Gobel & Kevin Sampson are solely responsible for its content. For more information on this topic or any other financial matter, please contact an IG Wealth Management Consultant
