to sell it from day one . What ’ s startling in America , and I would say it ’ s probably the same in Canada , is three-quarters of CEOs , private and public businesses , have no succession plan in place . There is no CEO that is being groomed , and it could take five or 10 years to groom someone .”
Before even getting into the more obvious elements of building a succession planning team , such as finding the right financial planner , Blackman talks about psychology . In fact , when Canadian Music Trade saw “ psychologist ” on his list of succession planning team members , we thought it was a bit in jest . Apparently not .
“ I do estate planning as part of our practice , and the joke in the industry is , ‘ Estate planning turns into perennial planning .’ That is , you start the conversation with the client and they never follow through with what we establish ,” Blackman says . “ They pay us to put a whole plan in place but they never pull the trigger and actually implement and sign off on it . Why ? Emotional and psychological reasons .” It ’ s common for business owners of any kind to feel their business is their identity , Blackman asserts , and therefore , “ You have to start creating new purpose for yourself or else you ’ re not interested in having these conversations because you don ’ t know what else to do .”
Assuming one is in the proper state to sell their business , whether to a family member , key manager , or third party , there is a lot to take care of . “ There ’ s a different standard that the owners operate under when it ’ s a family member versus a key manager . The family member often gets a free pass ; the key manager has got to really earn his or her stripes . The employees know it and that causes a lot of friction ,” cautions Blackman . So , who is needed on the succession planning team ? First , a financial planner is needed as a kind of coach or captain to oversee the process over the long haul . “ For example , I have a music retailer who retained me to do consulting ,” notes Blackman . “ We ’ re building out a business plan , we ’ re integrating that into his succession plan , and I introduced him to an accountant who is very experienced , and we ’ re building out the team and I kind of quarterback that . He has five to seven years , which is not a long time . We looked at every part of the business and where the needs are , then I bring in the skill set . I think financial planners are in a unique position because we kind of have the personal and the business . We really have a very deep understanding of what [ the owner ’ s ] values are , what ’ s important to them , so when I bring folks in , they don ’ t have to start all over again with them . I can make sure that they are doing the right thing .”
After that , it ’ s finding the right accountant , whom Blackman says does the initial valuation of the business . “ The accountant can also take a look at profitability , the diversification of their inventory , for example , and make some suggestions .” As well , government , whether it ’ s the IRS or Canada Revenue Agency , loves a business sale , says Blackman . “ It ’ s like meat on a hook waiting to drop down and the dog is salivating because of the taxes . If [ owners ] do the wrong thing , they can lose half their money just in taxes . So , the accountant is key .”
Next is a business attorney who is experienced in your province on matters such as business estate planning , business taxation , buy / sell agreements , and trusts . There are many elements that come into play depending on who the owner is selling to . If it ’ s a family member , there are accounting issues related to family gifting and generational transfers . Manager buyouts are another matter if the store is going to an employee . “ There ’ s a lot because it ’ s the attorney that is actually going to memorialize everything that the client has been discussing with the planner . They are the ones who lock all the stuff into paper and get the sign-off .”
The next team member is a valuations expert , which is especially important if there is any reason to believe the purchasing party , whether a family member or key manager , will dispute a valuation .
“ If there ’ s a divorce involved , you may need a more formal valuation ,” notes Blackman .
Lastly , a sell-side advisor may be helpful in finding the most optimal purchaser . As Blackman cautions , when you ’ re selling your largest asset , it ’ s often wise to get an outside opinion and multiple buyer options . Ultimately , the business owner is the client and they ’ ll decide what offer is acceptable .
Much of Blackman ’ s advice focuses on selling the business to a family member or key manager and the reason for that is simple ; if possible , don ’ t sell to a competitor . “ Your entire success depends on your ability to mentor , train , and groom one or more individuals . You ’ re going to get a better multiple if it ’ s an insider than selling to a competitor ,” he says . “ That I think is an important point . In other words , if someone says , ‘ I know a competitor , I ’ m just going to sell out ,’ professionals will caution and try to put the brakes on that to see if that is really the case . We will challenge that comment because if they ’ re able to groom someone inside , you ’ ll always get a more favourable multiple .”
Ultimately , no two sales are the same . If you have the right succession planning experts are on your team , they will tailor their advice to the owner ’ s situation . “ I mentioned that the financial planner is key because if the business owner doesn ’ t even know what they need for their own retirement , how do they know if what they ’ re asking for is going to be enough ? It has to start with the family needs first , before the business .”
MICHAEL RAINE IS THE EDITOR-IN-CHIEF OF CANADIAN MUSIC TRADE .
JAIMIE BLACKMAN OF BH WEALTH MANAGEMENT
CANADIAN MUSIC TRADE 29