Exiting a business, also known as succession planning, is not usually as simple as closing your doors. Depending on the type of succession you have in mind, your company should have an operations plan that contains contingencies for legal and contractual obligations, and employee termination.
If you’re selling your business, a detailed plan can help you get the best price possible, and ensure a smooth transition to the new owners.
Think of your operations plan as an instruction manual. The more relevant and important the details that you provide, the greater the probability of success the new owners will have in operating your business.
Dissolution: When You Have to Permanently Close Your Doors
You might need to shut down your business permanently, even if you don’t want to. The dissolution of your business needs to be a contingency of your operations plan from the very beginning in order to mitigate any unnecessary financial hardship.
- Contracts. For example, when running a business, you’re almost always required to sign contracts. These contracts are often broken in the event that your business closes unexpectedly, and could come with a penalty. Your contingency plan should include all of these costs, as well as plans that can help mitigate the costs of breaking contracts.
- Leases. Ending your lease early could come with a penalty that you can avoid if you find a tenant to sublet for the remainder of the lease. Does your lease allow for this? What about other contracts you hold?
- Employees. Your employees might be entitled to certain notice periods and severance in the event of termination of employment. Specific information on this topic can be found in the “Termination of Employment Fact Sheet” by the BC Ministry of Labour, Employment Standards Branch. At a minimum, you should have contingency funds set aside to meet obligations such as wages owing and severance. Even if your business is incorporated, in the event of bankruptcy, management can be held liable for monies owed to employees.
Family Succession: Passing Your Business on to the Next Generation
Most family businesses experience difficulty or fail when passed on to second and third generations because there isn’t a clear succession plan in place.
In the event that you wish your business to be passed on to family members, especially in the event of emergency or accidental death, your written operations plan must detail the who, what, when, where, why and how. Ensure that your plan is clear, complete, and includes roles and responsibilities of those who will inherit your business.
You should also plan how you will transition your business, and what your role, if any, will be. For instance, will you take a phased retirement approach whereby you still own the business, but hand over the day-to-day management to your child(ren) and take on a part-time advisory role? If so, there needs to be a clear definition of roles and division of responsibilities laid out in your succession plan.
Finally, if you want to give your business to your family, don’t just assume that they’ll accept it. It’s very important that you discuss your plans with your family members to make sure that they want ownership and/or management of the business and to help prepare them to take over the reins when the time comes. If your family doesn’t want to be involved, then you will need to review your other options for exiting your business.
A fantastic resource for family business succession planning is the Canadian Association of Family Enterprise.
Valuation: Get the Most for Your Business When You Sell
Do you want to increase the sale value of your business? Having a comprehensive and accurate operations plan and associated operational budget at all times will facilitate a sale, and could net you a better price for your business.
Writing a contingency plan to sell your business can also help you in the event you have to sell your business quickly. You’ll have an understanding of the cost, time, and effort involved in selling your business. Talk to an experienced business broker to plan for this contingency effectively.
And just like dissolving your business, you need to know the effects of the contractual and staffing commitments that your business has. Plan now so that these issues don’t become a deal-breaker at a time when you most need affairs to go smoothly.