How do I plan to retire from my business and hand it over?

Retirement and succession planning means deciding who will run or own the business when you step back, and getting the business ready for them. The Business Development Bank of Canada defines succession planning as the process of preparing successors for key roles so disruption is minimized during leadership changes. In an owner-operated business, start by asking whether your own role is one of those key roles. The Canadian Federation of Independent Business found that formal succession planning remains uncommon and that finding a suitable successor is the most significant barrier. This guide sets out the steps that follow from that, and it is separate from the question of whether you can retire and keep owning the business.

Start well before the date you have in mind

BDC says planning for the sale well in advance makes a big difference, whether your goal is a comfortable retirement, maintaining the company’s legacy, or remaining involved in the business somehow. Time is what lets you fix weak spots, train people, tidy records and test the market. Start by writing down what you want: a date, an income, a role afterward and what should happen to staff. Those answers decide whether you are planning a sale to an outsider, a transfer to family, a sale to staff or a gradual handover.

Identify and prepare the successor

The CFIB research names finding a successor as the top barrier, which is why it belongs near the start. A successor might be a family member, a manager, a partner or an outside buyer. In each case, ask what the person would need to take over: skills, authority, introductions to clients and suppliers, and financing. BDC’s approach is to identify the contributions and responsibilities attached to key roles and prepare someone to take them on. That includes your own role, which can hold more than a job title shows. List what only you know and begin transferring it. Hand over client relationships in stages: introduce the successor, attend meetings together, then step back while staying reachable. Delegate decisions one at a time, and watch how the person handles them, so that you learn early whether the plan is working.

Put the plan in writing

The CFIB reports that owners with a formal written succession plan are more confident in achieving a successful exit. A written plan does not need to be long. It can state the goal, the timeline, the successor or route, the steps to prepare the business and the people who will help. Share it with the people it affects, such as a spouse, partners and key managers, so they are not surprised. Revisit it each year, because health, family and the market all change. Include a fallback for an unplanned event, such as who can run the business if you are suddenly unable to, and where the key documents, passwords and contacts are kept. That fallback is part of succession planning too, not a separate task.

Bring in your advisers

BDC says an accountant can help prepare financial statements and projections and ensure the transaction is structured to minimize tax liability, and that you need a lawyer familiar with business transitions to negotiate the purchase agreement and deal with legal issues. Add a valuation professional if price is unsettled. Ask each of them early what documents they will need from you, and what could slow things down. If your business is a professional practice, your regulator may also set rules for who can take it over. Ask your advisers to review the plan together, since the legal, tax and financial parts affect one another, and a change to one can change the others. Keep the meetings scheduled well before the date you intend to step back.

Learn which tax tools may apply

Two tools are worth raising with your accountant. The Canada Revenue Agency says a capital gains reserve may let you report a gain over time when proceeds are paid later, generally over a maximum of four years, with a nine-year reserve period for certain transfers, including transfers to your child of qualified small business corporation shares. The CRA’s page on the capital gains deduction lists dispositions of qualified small business corporation shares among those that may qualify. Both come with conditions, and some details are described as proposed changes, so check what applies at your date. Because the conditions depend on how the business is held and on who receives it, raise them with your accountant years before a sale, while the structure can still be adjusted if it needs to be.

• Your target date, your income needs and the role you want afterward
• The route: outside sale, family transfer, staff sale or phased handover
• A named successor or buyer pool, and what each needs to take over
• A written plan, shared with the people it affects
• Your accountant’s and lawyer’s input on tax, structure and documents