Research from members of the Canadian banking sector teaches us that small business owners are between 45 and 70 years old – within the baby boomer cohort. And a lot of research has been done in the business literature on the upcoming retirement of boomers. By 2020, an estimated 50% of these boomers have retired. “It is estimated that $ 1.9 trillion in assets will change ownership in five years (2018), the largest transfer of Canadian corporate control ever,” said Benjamin Tal, an economist at CIBC. These boomer owners employ approximately two million people and account for 15% of Canada’s GDP. Other research by the CFIB (Canadian Federation of Independent Business) shows that less than 11% of them have succession plans, and Tal claims that nearly 60% of entrepreneurs, ages 55 to 64, have not yet started discussing exit plans with their family or business partners.
So why is succession planning so difficult? Why don’t entrepreneurs spend time thinking about and planning their succession?
Brian Weatherdon, author of A life full of wealth – and how not to lose it, and a financial specialist, tells us that there are a dozen reasons why owners don’t prepare to leave their businesses. These reasons range from lifestyles like “I don’t know what I would do to myself if I sold my business” to financial reasons like “I can’t afford to retire, I don’t have enough money.” But Brian tells us that none of these reasons need “… a breakneck sale of the company.”
Another, not fully understood or stated reason may be that the owner does not know how to transfer his expertise to the next generation. In other words, they don’t know how to prepare or develop a successor – be they family members or not. Succession planning is about taking action to get the owner to retire and transfer the business to someone else. But it’s also about finding the right successor, the person who can not only manage and manage the business, but also be able to grow the business profitably. The point is that the owner is aware of his own working style and how this knowledge can best be used to identify and develop the successor.
Bruce Hunter, author of Lighthouse 360, business coach and executive development expert, explains five growth stages that every small business owner will experience as her business grows and matures. These five stages of growth – architect, engineer, conqueror, conductor, and renovator – also illustrate how the owner changes as she moves through the life of her business. This realization of what stage their company is in helps the owner to determine the knowledge and expertise he needs to pass on to his successor.
So how does a boomer entrepreneur pass on this knowledge and expertise?
There are three steps to build the transfer of expertise from the owner to his successor.
First – identify the specific knowledge and skills – the expertise – needed to run and manage their specific business. Then they must inform themselves about the expertise of their potential successor. The gap in expertise is then fully identified and the owner now knows what knowledge to transfer and what skills and competences to develop before the successor is ready to take on the mantle of ownership. In this step, the owner identifies the work and communication styles of the potential new owner. Knowing these preferences will help you identify the best resources and tools to develop their replacement.
Second – build a simple strategy to transfer the required expertise. By answering the following four questions, the owner can structure the correct strategy.
- what knowledge should be transferred?
- which process is most suitable for the learning style of the potential successor?
- which methods of knowledge transfer should be applied?
- what is the timing for implementation?
Third – design the knowledge transfer process. It is critical to involve the potential successor in this step. The owner and successor evaluate the current level of expertise with what the future level should be. They then outline a detailed plan – similar to a project plan – complete with action steps, timelines, and accountability.
The process is not complicated, but can be challenging and takes a lot of time and energy. But there are many expert resources available for boomer entrepreneurs to help them build and implement a successful transition.
Succession planning is about change management. It’s about creating an environment for producing the next generation of business owner – to retain the expertise that resides in the company and position the company for the future. It doesn’t have to be painful.