BMO Business Succession Planning

Succession planning is the creation of a strategy for passing on leadership and/or the ownership of your business to an employee, a family member or an outside buyer. It helps to ensure the continuity of your business to run smoothly after you have relinquished some or all your responsibilities in the company.

Transitioning your business is a process, not a one-time event so it’s important to start planning early. Start discussions with your children or other family members who may be impacted, ideally at least three or more years in advance of the actual transition. Doing so will help facilitate a smooth transfer of responsibility and maintain the operational continuity of the business.

During the initial planning phase of transition and succession planning, you should ask yourself: 

• Who will take over the business?
• Should I sell my business or do my children want to take it over?
• Are my children the right people to take over the business?
• Will it be one, or more, of my children, or another family member?
• Who will be responsible for making business decisions?
• If one family member takes over the business, how does this impact my estate planning?

The best way to start is to have an open and candid conversation. Whether your business is agricultural, manufacturing or technology, the first thing you need to do is make sure that your family member(s) want to take over your business. If they do, you need to make sure they understand how your business works. A good idea is to have them work alongside you prior to taking over the business if they haven’t already. As well, they need to understand and be ready for any potential impact on their personal lives.

This depends on how legacy is viewed by the family. Does legacy mean having one or more children continue on the farm? Or does it mean selling the land in exchange for financial capital that can be used to benefit the family in other ways? The underlying theme in both questions is considering the effect of these decisions on family dynamics. If the outcome creates tension among family members, how does that affect legacy? One of the most common challenges with farm succession planning is the idea of fair versus equal. If a family has three children and two children take over the farm, while the third pursues a different career, the parents should consider the estate planning implications of gifting the farm to two children, and the inheritance received by the third child. This does not mean that the third child should receive an inheritance of the exact same value, but consideration should be given to an open and honest discussion among the family members to come to an understanding. Families can also consider tools such as life insurance, which is commonly employed in these situations.

The key to answering this question is early planning. By doing so, you will have sufficient time to establish goals and objectives and execute appropriate strategies. This includes tax planning, estate planning, and personal retirement planning. Through this process, you can benefit in the following ways: optimize tax efficiencies; establish targeted retirement date; gain comfort around retirement income; and manage family dynamics.

Speak with your BMO Private Wealth professional. They will put you in touch with a Business Owner Advisory & Succession Planning team member to discuss how we can assist you and your business.

Business succession planning ensures a seamless transition of wealth and business assets by strategically addressing the transfer of ownership, leadership, and management from one generation to the next. It involves careful preparation, legal considerations, financial strategies and communication.

By identifying and grooming suitable successors, establishing clear roles and responsibilities, and implementing contingency plans, the process aims to minimize disruptions, maintain business continuity, and preserve the value of the business for the benefit of future generations.

Here are a few things to consider when preparing your own management succession plan:

1. Write out a formal job description for each of the key positions in the company.
   You first need to have clarity on what skills and abilities are required for a particular role within the business.
2. Review the pool of available talent within your business.
   Identify individuals with the skills and attributes necessary to grow into the leadership roles above them.
3. Document the gap in knowledge and skills.
   Map out where the potential successor is today, and where they need to be at the time they will step into the new role.
4. Make a plan for how you can bridge those gaps in knowledge and skills.
   For some, bridging this gap may mean they need to take an accounting course, while others might simply need to job shadow their current manager for a period of time.
5. Communicate the plan.
   Convey and communicate with the people within your business, including your lawyer, your accountant, your banker, and any other professional advisors that might be able to provide valuable feedback.