From disruption to opportunity: COVID & business owners
With the onset of COVID-19, many businesses, large and small, have been plunged into an era of uncertainty filled with shutdowns and restrictions. For business owners like you, this has emphasized the importance of having a succession plan in place, especially for times of emergency. “As plans rarely proceed smoothly or as desired, it’s important to consider what could go wrong and prepare alternatives,” says Lucio Riccio, Director, Senior Wealth Strategist, Alberta and Prairies for CIBC Private Wealth Management.
While COVID-19 has acted as a disruptor for most businesses, it’s also presented opportunities. “The economic shock from the pandemic has forced owners to re-evaluate their core customers, key employees, supply relationships and ultimately their own personal objectives going forward,” says Philip Lehn, Vice President and Region Head, BC and Yukon for CIBC Commercial Bank.
For many of you, this has led to reimagining your business-as-usual approach, postponing expansion or redefining transition plans. Let’s look at the top three things to consider in your succession plan. Considering these factors well before the transition will help smooth the process when it occurs.
1) Identify key stakeholders
To understand the scope of succession planning—who and what is involved—start by breaking down the key stakeholders. The players may include your family, shareholders and the business itself. A comprehensive and integrated succession plan can address the needs of each stakeholder.
- Family members may have certain expectations or wishes that may have not yet been expressed.
- Shareholders expect to maximize the value of the business at sale.
- The business needs a strong leader who understands and can implement the next steps for growth.
Through the planning process you also have the opportunity to revisit your current financial position and future cash-flow requirements. It’s important to have an updated financial plan to address your needs for the next stage of your life.
2) Identify the right exit option
Another critical part of succession planning is to identify what you want to do with your business. That could mean transitioning it within your family or selling the company to a third party. If you plan to pass it on to family, you’ll need to create a successor development plan. If you decide to sell to a third party, look to a strategic partner or employee(s) to maintain the business’s viability.
Riccio adds that once you’ve decided to sell, you need to determine what your business is worth, regardless of whether you transfer it to a family member or sell it to a third party.
3) Start planning
Ownership of your company will change at some point and it’s far better to be proactive than reactive.
Although you can plan for your succession two to three years in advance, planning five years out is best. It gives you time to evaluate and modify your plans, as needed.
“Succession-planning procrastination is a very common challenge for entrepreneurs,” says Lehn. He says to ask yourself: Do I have family members interested in the business? If not now, will they be interested in the future? Are they capable of running the business? If not now, will they be capable in whole or in part in the future? As these are difficult questions to answer without the benefit of time, many entrepreneurs defer succession planning. “There is often increased risk and opportunity cost associated with the procrastination,” says Lehn.
We can help
“Disruption from COVID-19 altered the growth prospects for businesses both short and long term. As with any profound change, this presented opportunities and risks to many business owners’ transition plans,” says Lehn.
When developing and managing your transition strategy, collaborating with a team of experts helps ensure your success. Especially in light of the effects the pandemic may have had on your business.
Lehn points to CIBC’s Mid-Market Investment Banking advisors as an important resource. They work closely with your other tax and legal advisors to help create a strategic and comprehensive plan, and seamless transition process.
Did you know?
A May 2020 CIBC study found that the majority (81%) of Canadian small business owners said COVID-19 had negatively impacted their operations, and many (32%) worried about the viability of their business over the next year. However, optimism for the longer term remained strong with most business owners (76%) confident they could rebound after the crisis.
Contact us anytime to talk about how a succession plan can turn disruption into opportunity for your business.