Effective succession planning: 6 questions to ask before getting started

You’ve worked hard to build a successful business. Throughout the years there were many sleepless nights and client meetings, and long hours spent developing new products and pouring over financial statements. Today, new opportunities might be calling or maybe you just want to rest easy and reap the rewards of years of hard work. Whatever the reason, you feel it’s time to pass the torch.

But simply deciding to close this chapter doesn’t mean the end of the adventure just yet! Having a successful exit and succession plan requires careful planning, without which the whole process can go off the rails.

Six questions to ask before getting started

Before beginning the succession planning process, certain things must be clarified with your successors and your business advisors.

Key steps in starting the process

1. Identify targeted buyers

  • Use your network of contacts.
  • Hire a professional with extensive transaction experience.
2. Draw up a confidential information memorandum

  • This document will be used to present the company to potential buyers, indicating its value.
  • Highlight the company’s principal value drivers.
  • Indicate trends in terms of financial results, e.g., sales, EBITDA, adjustments, targeted net working capital.

3. Solicit interested parties

  • This step can be part of a formal or informal process.
4. Negotiate the contents of the letter of intent

  • The letter of intent should address the following issues: price, shares, assets or hybrid structure, net working capital, period of exclusivity, and closing conditions.

5. Coordinate the due diligence review

  • Plan financial, legal and tax transactions with the help of your advisor.

6. Negotiate the purchase agreement

  • The purchase agreement must set out the price, any non-cash considerations, representations and warranties, and limitations of the liability exemption clause.

Consulting a trusted advisor is crucial

It is extremely important to have a good advisor for any business transactions in the succession planning process. This person must be able to provide extensive and objective financial and business expertise in accordance with your needs.

A company’s objectives and concerns change frequently, as does the manner in which it operates. Your advisor must be committed to meet with you regularly to ensure that decisions are being made based on the most recent information so that you receive practical and knowledgeable advice.

Richter’s Approach

At Richter, our approach to understanding each client’s business is comprehensive while at the same time tailored to specific needs. We take the time to understand your objectives and concerns whether you are a shareholder, a manager or operator within the company, or a family member who wants to generate wealth for future generations, (regardless of whether or not they are actively involved in the business).

Our service model involves a comprehensive and integrated approach, going beyond professional offerings. In effect, we become a natural extension of our clients’ businesses.

Read more on the same topic: 10 key issues for maximizing business value


About Richter: Founded in Montreal in 1926, Richter is a licensed public accounting firm  that provides assurance, tax and wealth management services, as well as financial advisory services in the areas of organizational restructuring and insolvency, business valuation, corporate finance, litigation support, and forensic accounting. Our commitment to excellence, our in-depth understanding of financial issues and our practical problem-solving methods have positioned us as one of the most important independent accounting, organizational advisory and consulting firms in the country. Richter has offices in both Toronto and Montreal. Follow us on LinkedInFacebook and Twitter.

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