Canadian Retailer - July/August 2010 - (Page 78)
| you asked us
exit, stage right
“I’m looking at retiring and possibly handing my business l down to a family member, but my business is my retirement plan. What should I take into consideration?” an.
Ma Make a plan
Independent owners of small business often have a lot on their th plate with respect to ensuring the continued growth an and success of their operations. However, developing a well thought out succession plan, according to Grant Robinson, h an FCA and partner with BDO who leads the BDO Transin ti tion Program, is perhaps just as important. “This is just like any other business problem you’ve had,” Robinson explains. “You have to sit down and say, ‘Here’s where I’m at. Here’s where I want to go.What’s stopping me and how am I going to get there?’You have to treat it like a real issue. This means they need to put the same resources and effort into it just like they would any other business problem. ” Business owners ultimately have two options when deciding what to do with their business upon retirement – they can sell to someone inside the family or business, or they can sell to someone outside the family or business. To create maximum choice, says Robinson, “business owners would be wise to plan for a sale inside the family or business. They can sell outside at any time…it’s just a question of what the market will pay at the time. If they have other options, they can attempt to time the market. But if they don’t actively plan for an internal sale,” warns Robinson, “they won’t leave themselves with any other option.” much does this business make in profits? They will then offer to pay a multiple of that number, usually four to six times the profits. “With family sales, you usually agree on a price and the original owner takes back some ‘preferred shares,’ which the new owner pays off as he or she can afford to,” says Robinson. “So the entrepreneur wouldn’t get a cheque the first day, but he would get his fair price.”
Fill in the gaps in your successor’s training
So you’d like a relative or a trusted employee to take over the business. How do you know that that person is capable of running it? “They may be good at sales but may not know how to manage,” says Robinson. Take a clear-eyed look at your potential successor’s skill sets and then fill in the gaps through training, coaching and mentoring.
Define key roles
Having two bosses involved in a business can create friction, particularly if the entrepreneur is in the habit of looking over the successor’s shoulder and over-ruling decisions. Communication is crucial in order to avoid conflict, says Robinson. Rather than “one day the switch is on, the next day it’s off,” he suggests transitioning the business slowly over time. Start with an area of the business the successor is most qualified to handle and clearly outline their authority, responsibility and accountability. Add new areas of responsibility as the successor becomes familiar with the clients, the suppliers and the business. “Once you hand over the authority, you can second-guess,” adds Robinson, “but you have to do it in the context of mentoring and growing the successor. It’s the difference between: ‘You’re here to learn,’ as opposed to, ‘You screwed that up.’”
Identify a successor
The first element of a transition plan is to identify potential successors and let them know about it. “Every year a friend of mine who is a professor at the University of Western Ontario asks his class, ‘How many people are here to get their MBAs to go help with the family business?’” says Robinson. “Half the people put up their hands.Then he says, ‘And how many of you are getting your MBA to leave the family business?’ The other half put up their hands.” Of the whole class, only about 10% have communicated their reasoning to their parents, he points out. “Have that conversation,” he advises. “It’s key to communicate your intentions and ask them about theirs.”
Planning for retirement
In addition to planning for business succession, small business owners should also ensure an accumulation of wealth outside of their business. “Business owners typically plough all their wealth back into the business so if something bad happens to their “one stock” their retirement is severely impacted,” warns Robinson. He suggests investing in an RRSP and tax-free savings account, in addition to investment in a permanent insurance policy that has a cash value - policies that the holder can draw from when funds are needed while the value accumulates, eventually covering the premiums.
Deal with the money matters
The next sticky topic to deal with: money. Robinson suggests getting a business valuation, so you have a clear idea of what someone else might pay for your ‘baby’. As a rule of thumb, he says a potential buyer will ask the question: How
78 | canadian retailer | july/august 2010 | retailcouncil.org/cdnretailer
Table of Contents for the Digital Edition of Canadian Retailer - July/August 2010
Canadian Retailer - July/August 2010
In Your Best Interest
Retail: At Issue
Store Conference 2010
You Asked Us
Canadian Retailer - July/August 2010