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Succeeding at Succession

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In a 2018 article discussing succession planning (albeit at a high level) CPA magazine discusses some of the obvious as well as less obvious aspects of this inevitable part of a business� life cycle.

According to the Family Business Institute, only about 30 per cent of family and businesses survive into the second generation and 12 per cent are still viable into the third generation.

Among the reasons that family businesses don�t survive: a lack of succession planning, a lack of a logical successor, and, the fact that the business can�t escape its owner.

Central and seminal to the succession process, clearly, is planning. Our experience, echoed in the article, is that your succession planning timeline should ideally start 10 years before you hand over the reins.

A thoughtful succession plan will consider your family and your legacy to them; your position as a shareholder, notably tax management and; preparing your business strategically for the transition. A great deal and variety of expertise is necessary to fully articulate a succession plan. Your accountant, your corporate lawyer and holistic financial advisory firm have central roles. Specific additional skills will likely include an estate lawyer, a virtual CFO (to assist in the preparation of internal records supporting valuation and tax), process engineering expertise to streamline and maximize business valuation among others.

Businesses working without a succession plan can invite disruption, uncertainty, conflict, and endanger future competiveness. In a series of documents published in 2013, Deloitte warned that an unprepared successor, or even a competent management team involved in a poorly managed transition, can result in significant loss in value.

One aspect of succession which is not highlighted in the article, that forms an integral aspect of any of our clients plan, is that sadly, succession is not always a voluntary process. The staged and thoughtful transition plan contemplated above may be pre-empted by the passing of the business owner. Worse still, the owner may not have even started the planning process. �CRA don�t care�.

There are financial, tax and structural aspects of the succession process that should be considered and implemented early in business life cycle to derive a significant legacy value in the case of involuntary owner separation.

Let’s Start A Conversation  today to discuss how these changes are affecting your financial future.

Submitted by Jim Pelot, B.Comm, CPA, CA; CFO and Co-Founder of Podium Prosperity Group 

This article is provided for information purposes only. Although the content is believed to be reliable when posted, Podium Prosperity Group cannot guarantee this information is current, accurate or complete and does not assume any liability. The information is not intended to provide any insurance, financial, legal, accounting or taxation advice and should not under any circumstances be relied upon without consultation about your specific situation. The information is subject to modification and updating from time to time without notice. 

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