Grocery insights: The key to successful business succession?

Canada’s food and beverage sector faces a period of significant transition, as a generation of owners transition out of their businesses. Approximately $1 trillion in small-business assets are expected to change hands by 2022, according to a 2012 Canadian Federation of Independent Business report. And yet a Deloitte study of 120 family-owned Canadian companies found that just 17% had formal succession plans in place.

Whether you’re transitioning your business to family or the management team, recapitalizing it or selling it to a third party, early planning can greatly improve your chance of a successful succession. It’s never too early to take a big-picture, long-term view of your company and its place in the business lifecycle. If you are planning to sell or otherwise transition ownership of your business, here’s where to start:

• Determine your objectives. What are your transition priorities? Maximizing value? Preserving a family legacy? Maintaining the corporate culture? Is timing important? Use these priorities to guide you.
• Step back. If you’re the critical link in your business, it’s time to reduce the company’s dependence on you. Recruit experienced management to assume responsibility for key business functions and relationships. Investors or buyers must be confident you’ve built a business whose success will continue after you’ve left.
• Improve your financial management. Being able to produce high-quality, accurate, timely financial information is vital to a successful transaction. Hiring a dedicated CFO or controller and investing in the right financial systems and technologies can improve financial management overall and help you better explain your company’s performance to investors or buyers.
• Articulate the growth story. Be prepared to articulate a clear, credible growth story and vision for your company. Start talking about—and running—your business with a focus on the value propositions that set you apart and drive your success.
• Be realistic about valuations. Many factors that influence your company’s valuation are simply beyond your control. Understanding your company’s value drivers, key economic and market trends, and industry benchmarks will give you a sense of what you can reasonably expect before the transition process begins.
• Don’t neglect tax planning. Headline purchase prices get attention, but after-tax net proceeds matter more. Tax planning and structuring are critical in determining what you pocket when the deal’s done. Here too, an early start is vital—some tax structures must be in place for a specific period of time for you to realize their advantages.
• Get professional help. M&A transactions are complex, time-consuming and often once-in-a-lifetime events that can distract management from keeping the business on target. Emotions can interfere with decision-making, leading to mishandled deals. An experienced M&A advisor can help you identify suitable investors or purchasers, navigate issues and ultimately achieve your optimal outcome, and specialized transaction tax advisors can help you make the most of any transaction.

When it comes to effective succession planning, an early start can be the key to success. Now is a great time to begin.

For more information on how to start early on effective succession planning, contact: