As Victoria closes out the final week of Small Business Month, there’s no better time to for small business owners around the region to gut-test both their short and long-term goals with their partners, family and trusted business advisors.
Our local community is full of amazing entrepreneurs that are great at running their business but tend to fall a bit short when it comes to answering the big “what if?” questions about their company’s future. After all, only 16% of businesses in BC have some form of a succession plan—and my guess is that many of the survey participants that checked ‘yes’ next to this question have plans that read something like “my spouse and kids will handle things”.
At Island Savings, this inheritance answer is the one I hear most often from business owners in Victoria—yet when I speak with the children in question they’ve often got a vastly different idea for their family business’ future.
Having your succession plan down in writing (and then discussing it with the business partners, friends or family members involved) is an important step for small business owners.
Here are four questions to start with:
1What is my biggest asset?
Most people think in terms of tangible items—either their home or their RSPs—but I believe our biggest asset is our ability to earn income (personally and through talented employees). So what happens when the owner of a business becomes ill or can’t work anymore? Getting inexpensive disability and critical illness insurance in place will help shelter any business through a transition if something unthinkable happens.
It’s also important for business owners to skill up their employees so that losing any one person in the business does not railroad operations. Having employees that are like Swiss Army knives will ensure business continuity while either an owner recovers or the company itself changes hands.
2 What would happen to my business if our building was destroyed?
Business overhead insurance will help cover the cost of rent, salaries, leases and accounts payable if there is a fire and you can’t use your location anymore. Even when you temporarily don’t have a physical location or goods to sell, you’ll likely still have payroll, mortgage and overhead payments to make.
3Who will buy the business from my beneficiaries?
If you work with one or more business partners it’s important to have a buy/sell agreement in place so that if something happens to one of you there is a fair and agreeable way of selling or transferring the business. You may get along great with your partner but would you be able to work the same way with his or her spouse? What about his or her children? A death or sudden departure without prior planning often makes for unusual or unwanted partnerships. I have a client whose husband left equal shares of his very successful business to both his son and wife. It’s been six years and they are still in court trying to decide who actually controls the business.
4Where do I start?
Remember that having a will and power or attorney is the first step in any business planning, no matter how small the business is.
Talking to your accountant about what your business will look like in one, two and five years will give them an opportunity to design strategies (e.g. incorporation) to help plan for future growth. Businesses are like trees—they start out small but if you plant them in the wrong spot and you’ll end up having to trim branches you’d rather have hung onto to make way for power lines.
Thoughtful and collaborative planning with your business partner(s), planned successors, financial advisor and accountant now will help you flexibly grow your business in the right spot from today onwards.