Q. I own my own, very successful, company and although it is large and I have a very capable senior management team, I am very involved in the day-to-day management. I am older and will have to retire in a few years, at least partially. My children work in the business but have no interest in running it. Having been too busy building the company, I have never put together a succession plan. Now I worry that when I pass, my company may suffer. I haven’t ruled out selling, at least part of my company, to one of my employees. Do you have some advice on what my options might be? – Jensen P.
A. Business succession planning is critical for the self-employed and business owners. Leaving it to chance could allow someone else to decide what will happen to your business. There is the potential for significant loss if your business can’t function because you are not there or if there are other business interruptions such as creditors demanding payment or employees seeking more stable employment elsewhere. This uncertainty could lead to a forced sale or business liquidation at a substantially reduced value.
If your business is the primary asset and main source of income for your family, you need to plan for your family’s personal needs first. There needs to be sufficient life and disability insurance to make sure that you and your family can sustain your current lifestyle in the event of illness or death. With your personal affairs in order, it’s time to look at the needs of your business. As a business owner, you need insurance to protect your business property and for that you need a business succession plan. You should ask yourself how the business will continue to function if you lose a key person or some other unexpected business interruption. Insurance to cover the lives of key persons is used to cover this scenario.
You should communicate with your family members to assess their interest and preparedness to take over the business. Ownership and management are two different things. Selling the business to a key employee may be an alternative and may help to avoid family disputes. Have a buy-sell agreement and corporate insurance in place that allows surviving partners or stakeholders to buy your share of the ownership and maintain control of the company.
Bev Moir is a Senior Investment Executive and financial planner with The Moir Team at ScotiaMcLeod,Toronto. ScotiaMcLeod is a division of Scotia Capital Inc., a member of the Scotiabank Group. Member Canadian Investor Protection Fund (CIPF).
This article is for information purposes only. It is recommended that individuals consult with a financial or tax advisor before acting on any information contained in this article. When discussing Life Insurance Products, ScotiaMcLeod Investment Executives are acting as Life Underwriters representing ScotiaMcLeod Financial Services (Ontario) Inc. The opinions stated are not necessarily those of Scotia Capital or The Bank of Nova Scotia
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