Business Transition Planning Checklist How to proactively plan for the ...

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As a business owner, you need to ask one question about succession planning: ... should not be taken as the views of the
CIBC BUSINESS TRANSITION PLANNING CLIENT CHECKLIST

Business Transition Planning Checklist How to proactively plan for the sale of your business As a business owner, you need to ask one question about succession planning: “Am I going to deal with business transition proactively or reactively?” Your answer will determine everything that follows. The secret to succession planning success is to be ready to sell, even if your business is not for sale. By being proactive, you’ll maximize the value of your business when the time, buyer and terms are right. Your succession planning options There are three ways to transition your business: 1. T  ransition within the family – Your successor may know the business inside and out, but this approach may also cause family or employee discord 2. Sell to a partner or employee – A partner knows the business and has built a reputation among employees, suppliers and clients, but may be similar to your age, with retirement potentially on the horizon 3. Sell to a third-party buyer – An outsider may not know the business (e.g., history and employees), but this option presents more buyers and the potential for a higher sale price Succession planning checklist: Start with the business’ needs Define overarching goals

Effectively communicate your succession plan

 A  sk: What does the business need from its next leader? (Examples include operational efficiency, customer intimacy, innovation and access to new markets)  Determine timeline to transition  Establish team of professional advisors (including financial advisor, lawyer, accountant, wealth specialists, and taxation and insurance specialists)  Review business structure (e.g., sole proprietorship, partnership, corporation)

 Involve family members, partners and key employees  Explain succession plan to all stakeholders, and put it in writing  Create process for solving disputes among all stakeholders  Regularly communicate changes

Plan for successors  Identify successors among family members, partners and employees  Consider an interim leader if your desired successor is not ready to lead  Create a development plan for your successor  Define how you are going to be involved following the transition Explore tax opportunities and maximize retirement income  C  apital gains exemption – lifetime exemption of $824,170 (for 2016)  Estate freeze  Holding company  Family trust  Individual pension plan (“IPP”)  Retirement compensation arrangement

Build a contingency plan  P  repare to change your method of transition (e.g., to a third party rather than a partner)  Purchase insurance coverage, including life, disability and critical illness  Craft a detailed shareholders’ agreement that includes buy/sell clauses

43% of family businesses don’t have a succession plan in place Source: PwC, “Family Business Survey 2016”

CIBC BUSINESS TRANSITION PLANNING CLIENT CHECKLIST

“Unless the next generation is really charged-up about running the business, do everyone a favour – sell.” – Sean Foran, Managing Director, Business Transition Planning at CIBC

What to do if you sell reactively Reactive sales typically happen because a buyer shows up unexpectedly or an illness occurs. If you haven’t been proactive, you can still position yourself for success by keeping the following tips in mind: 1. If you decide to keep the business, now is the time to start proactively planning for the inevitable business transition. 2. If you decide to sell, seek outside expertise to determine your business’ valuation, explore taxation issues and plan the sale process. 3. C  hoose whether you will start negotiations or bring more buyers to the table through a confidential process. This is typically the best approach – more buyers create competition and potentially increase the sale price.

Proactive succession planning best practices 1. Plan early – even if the business isn’t for sale, you can plan for an eventual sale 2. Communicate often – be open with your family, business partners and financial advisor 3. Bring in outside expertise – fresh ideas and deeper/broader experience will expand your options 4. Develop a strategic plan – and a contingency plan in case Plan A fails 5. Let the next generation help make decisions – you want to manage expectations and avoid ill feelings 6. Strengthen the role of the board – thorough oversight improves the business’ value

While succession planning is complex, it doesn’t have to be daunting. By taking a proactive approach, you help to ensure the best possible outcome for you, your family and your business.

Speak to your CIBC advisor for more succession planning insights.

The views expressed in this article are the personal views of Sean Foran and should not be taken as the views of the Canadian Imperial Bank of Commerce (CIBC). This document is provided for general informational purposes only and does not constitute investment advice. Individual circumstances and current events are critical to sound investment planning; anyone wishing to act on this article should consult with his or her advisors. The information contained in this document has been obtained from sources believed to be reliable and is believed to be accurate at the time of publishing, but we do not represent that it is accurate or complete and it should be relied upon as such. All opinions and estimates expressed in this document are as of the date of publication unless otherwise indicated, and are subject to change. The CIBC logo is a registered trademark of CIBC. The material and/or its contents may not be reproduced without the express written consent of CIBC Wealth Management.