Effective succession planning: 6 questions to ask before getting started

You’ve worked hard to build a successful business.

Throughout the years there were many sleepless nights and client meetings, and long hours spent developing new products and pouring over financial statements. Today, new opportunities might be calling or maybe you just want to rest easy and reap the rewards of years of hard work. Whatever the reason, you feel it’s time for succession planning so you can pass the torch.

But simply deciding to close this chapter doesn’t mean the end of the adventure just yet! Having a successful exit and succession plan requires careful planning, without which the whole process can go off the rails.

Six questions to ask before getting started

Before beginning the succession planning process, certain things must be clarified with your successors and your business advisors.

Key steps in starting the process

1. Identify targeted buyers

• Use your network of contacts.
• Hire a professional with extensive transaction experience.

2. Draw up a confidential information memorandum

• This document will be used to present the company to potential buyers, indicating its value.
• Highlight the company’s principal value drivers.
• Indicate trends in terms of financial results, e.g., sales, EBITDA, adjustments, targeted net working capital.

3. Solicit interested parties

• This step can be part of a formal or informal process.

4. Negotiate the contents of the letter of intent

• The letter of intent should address the following issues: price, shares, assets or hybrid structure, net working capital, period of exclusivity, and closing conditions.

5. Coordinate the due diligence review

• Plan financial, legal and tax transactions with the help of your advisor.

6. Negotiate the purchase agreement

The purchase agreement must set out the price, any non-cash considerations, representations and warranties, and limitations of the liability exemption clause.

Consulting a trusted advisor is crucial

It is extremely important to have a good advisor for any business transactions in the succession planning process. This person must be able to provide extensive and objective financial and business expertise in accordance with your needs.

A company’s objectives and concerns change frequently, as does the manner in which it operates. Your advisor must be committed to meet with you regularly to ensure that decisions are being made based on the most recent information so that you receive practical and knowledgeable advice.

How we can help you

When we say our approach is holistic, we mean it. It’s centered around you. Not just your company; not only your legacy, you. We advise business owners and their families both personally and professionally. Our professionals, (from wealth management, valuations, taxation and estates, to various other service lines) work collaboratively to provide advice that makes the most sense for you and your objectives – because we know that your work affects your personal life, and vice versa – they are of equal importance. Through early, comprehensive planning, our professionals assess every situation and present options to help you make informed, strategic decisions to make the most out of your unique situation.

Read more articles on business succession planning:

• There’s selling and then there’s everything else…
• When “What If” Becomes “What Now”