Preparing for the future with business succession planning
Learn how business succession planning can help ensure the continuity of your business and preserve your legacy.
Updated 
10 min. read
Protecting your business and legacy through succession planning
For many business owners, the work it takes to grow and maintain day-to-day operations can put succession planning firmly on the back burner. Between responding to client requests, pitching new business, or working with suppliers, there never seem to be enough hours in the day—never mind planning for the future.
As a result, fewer than 50% of Canadian business owners have a succession plan in place. This lack of future planning not only puts their personal wealth at risk, but it exposes their business to continuity issues in the event something unexpected takes place.
It goes without saying, life comes with a degree of uncertainty. An expertly crafted succession plan offers a strong level of protection. It covers all stakeholders, from family members to customers or shareholders, should sudden illness, death, or unexpected opportunities force a business owner to step away.
With the right strategy in place, business succession planning also dovetails seamlessly with retirement planning, ensuring personal financial security after years of hard work building a business.
Understanding business succession planning: A strategic perspective
Business succession planning is the process of preparing for the seamless transfer of ownership and leadership of a company—either within a family, within the business or to external parties—in the event of retirement, a planned sale, or unforeseen circumstances. It involves developing a structured strategy that outlines who will take over key roles, how the transfer will be executed, and the financial and legal steps necessary to achieve it.
Beyond helping business owners protect the future of the wealth they’ve built up over years and decades, succession planning offers benefits that can impact everything from risk management to boosting your competitive advantage.
What’s more, while succession planning is primarily thought to benefit larger corporations, it’s equally as important for smaller-sized or family-run businesses that rely on a few key individuals to run things. With fewer people in decision-making roles, these companies are especially vulnerable to the types of disruptions a solid succession strategy can mitigate.
To get there, working with a private wealth professional is crucial. Their expertise can help find innovative ways to conserve wealth, prepare companies for future sale, and even help boost business in the present. Let’s look at a few key benefits.
The benefits of building a business succession plan
Planning for the future of your business is crucial to driving long-term success and protecting what you’ve built. It’s important to cover all your bases so that you’re prepared for anything down the road, and that you keep your business legacy going. Let’s take a closer look at the biggest benefits of creating a business succession plan.
Risk management
A solid business succession plan can help reduce risk with proactive strategies to overcome unforeseen events that can impact operations. This might include serious illness, or even the death of a business owner. A plan that identifies and prepares potential successors ensures that even in the worst case, the business carries on.
Improvements to company culture
By identifying, promoting, and training employees for future management roles, everyone comes out ahead. Not only do staff feel recognized and valued, but they also feel more secure knowing the company will continue to thrive even after a change in leadership.
Retirement and estate planning
A business succession plan helps you financially safeguard yourself, your family, and your organization in the years to come. With a clear-cut strategy in place, you can ensure retirement income that fits your lifestyle and eventually divide your wealth however you see fit.
Competitive advantage
A commitment to longevity can also strengthen your company's competitive advantage, especially during periods of market fluctuation. Business likes predictability, and with a succession plan in place, your customers and clients can rest easy knowing their services and supply chains won’t be cut off due to a change in leadership.
Roadmapping a business succession plan
While succession planning can benefit all businesses, there is no one-size-fits-all approach to putting one together. A private wealth professional can help by examining your business and finances to identify future opportunities.
Do you want to pass your business on to the next generation? Sell to outside investors? Transition ownership to your employees? Whatever your goals, the first step will be to draft a succession planning roadmap. This roadmap will align your personal and business goals to develop a strategy that fits. This strategy involves assessing needs and goals, valuating your business, and considering all your options for you and your business’ future.
Ready to get started on your business succession plan? Follow these steps to stay aligned as you work toward your personal and business goals simultaneously.
1. Set clear goals
The first step in business succession planning is to carefully consider what you want to achieve for your business, as well as for you and your family individually.
Personal: Assess your personal and family needs and vision for the future in terms of retirement, business ownership, and wealth transfer—then set goals that ladder up to making that vision a reality.
Business: Analyze your business needs to ensure continuity of operations, including key leadership roles, skill gaps, and growth plans.
Naturally, these two sets of objectives will differ, as your family and business don’t have the exact same needs and visions. But this planning stage gives you the tools to strategize in a way where you can pursue both at the same time.
2. Develop a strategic process
Once you have goals in place, it’s time to figure out how to get there. This involves considering all your options and building out an actionable, step-by-step plan that addresses both sets of goals you’ve defined.
Personal: Examine your retirement planning options, as well as estate and tax planning for intergenerational wealth transfer. Determine the necessary steps to secure your family’s financial future and ensure your legacy goals are integrated into your succession plan.
Business: Establish a dollar value for your business through a valuation process. Then, identify and document the key actions for a smooth transition, such as preparing for sale negotiations, training successors, and setting up structures for transferring ownership.
3. Implement your exit strategy
Once you’re happy with your succession plans and are ready to leave, the final step in your roadmap is to put everything in motion.
Personal: Finalize the transfer of your ownership stake and begin the family transition of personal and business assets. Step back from day-to-day involvement and shift your focus to post-exit priorities such as wealth preservation, lifestyle, and family legacy.
Business: Carry out the steps in your chosen strategy, prioritizing leadership stability as you prepare for the third-party sale or internal transfer of responsibilities. Oversee the operational handoff, secure appropriate legal and regulatory support, and communicate changes to all stakeholders.
Once you’ve created a roadmap and are ready to see it through, your wealth advisor will develop a suite of options to ensure your business thrives no matter what happens, and an intergenerational wealth plan to ensure your family legacy lives on.
Overcoming common pitfalls when developing a succession planning strategy
No matter what your circumstances might be, the orderly transition of business management or ownership will involve a multitude of moving parts. And with your business and intergenerational wealth on the line, the stakes couldn’t be higher.
Thankfully, with expert help, you can avoid common errors and set you and your business up for long-term success. These pitfalls include:
Waiting too long
Kicking the can down the road is often the easy choice. But by being proactive with succession planning, you can start preparing your company now. The sooner you have a plan, the easier it will be to deal with change, from sudden, unforeseen circumstances to corporate restructuring down the road.
Not giving yourself enough time
While it took years of sweat equity to build your business, the last thing you want is to slap together a hasty plan that misses key elements that could secure your family’s future. The succession management process takes time to implement. By working with professional wealth managers, you can work a long-term strategy into your day-to-day operations.
Skipping over financial and legal implications
The tax and legal implications attached to transferring wealth or company ownership can get complicated, quickly (especially when talking about portfolios worth multiple millions of dollars). Ensuring all your bases are covered might take some time but can help save money in the long term.
Keeping stakeholders out of the loop
From board members to family members, no one likes surprises when it comes to finances or taxes. Involving all stakeholders from the outset is essential. When people know what’s coming, they can plan ahead.
Letting a succession plan lapse
In business, things can change quickly. That’s why it’s important to keep a succession plan up to date. This means that no matter what happens, the business will continue and wealth is preserved.
Seeking professional advice
Change often happens when we least expect it. With so much at stake and so many variables to consider, business owners thinking of selling a business or transitioning ownership should make plans to speak to a private wealth professional sooner rather than later.
Working with a BMO Business Advisory and Succession Planning professional will help you define exit plans and navigate the financial, tax, and legal implications that come with transition. As a business owner, you worked hard, built your business and fulfilled your dreams. The last thing you want is a fumble when it comes time to crossing the finish line.
Business succession planning FAQs
Succession planning is all about making sure your company can survive either a sudden or planned change to leadership. It takes a comprehensive look at your goals and develops a roadmap to ensure you have the people in place to ensure operational continuity once the present owner or owners have moved on.
As early as possible. Ideally, you’ll want to start planning for a transition several years before you plan to retire. The more time you allocate to prep successors and identify business or personal gaps, the better.
A well-crafted succession plan should cover a variety of factors. It should identify key roles and successors (family or otherwise), provide a timeline for transition, and address all legal, tax, and financial considerations. It should also include contingency plans in case of sudden changes to leadership.
That depends. While ultimately this comes down to personal choice, both strategies have their pros and cons. Promoting internally can ensure continuity and boost morale, while external hires bring new skills and diverse industry experience. The best choice will be the one that weighs your current staffing structure against future strategic needs.
Absolutely. In fact, smaller companies that rely on a few key individuals are often more vulnerable to disruption caused by changes to leadership than their larger counterparts. A succession plan ensures continuity.
Succession planning can impact business value by reducing risks associated with changes in leadership and ensuring continuity of operations. It can also let potential buyers or investors know that their money is safe, even if leadership changes.
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