What does a succession plan actually contain?

The term succession plan gets used loosely, often meaning little more than a vague intention to deal with it eventually. A plan that actually holds up has specific components, and most Canadian small businesses, according to research from the Canadian Federation of Independent Business, do not have one in any formal sense.

The exit path and the timeline

A plan states clearly which path the business is heading toward: family, employees, a third-party sale, or a wind-down, and puts a realistic timeline against it. A vague intention to deal with it eventually is not a plan. It is the absence of one, and it is what most owners actually have.

A valuation and the financial picture

A current, defensible valuation anchors the whole plan. It tells you what the business is worth today, what is holding that value down, and what a transfer or sale would actually produce. It needs to be refreshed periodically, not done once and treated as permanent.

The tax, financing and legal structure

• The plan states how the transfer or sale will be structured for tax purposes, and how much lead time that structure needs.
• The plan states how the buyer or successor will finance the purchase.
• The plan lists what legal documents need to be in place: a shareholder or buy-sell agreement, an updated will, current corporate records.
• The plan names who is advising you: an accountant, a lawyer and, where relevant, a business valuator.

The contingency nobody wants to plan for

A complete plan also covers what happens if you die or become seriously disabled before the intended exit, because a plan that only works if everything goes on schedule is not a full plan. This is usually the shortest section, but it is the one that protects the business, and your family, if timing does not go as intended.