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Updated on September 18, 2023
Transferring a business is an important step. What are your options to ensure your company’s continuity?
There are various transfer models. It’s up to you to determine which best suits your needs as well as those of your business, employees and clients. These models are:
Transfer to a family member
Passing the torch to a family member is a model that many business owners choose. About one third of businesses are transferred to a family member, particularly when the person already works in the business.
There is a clear understanding of the corporate culture with this transfer model as well as a relationship of trust. The family heritage is maintained and the company’s reputation is enhanced.
One possible impediment to this model is that often there is only one family member to take over the reins. It can take two to three people to replace a business owner. Understandably, young entrepreneurs do not want to work 80 hours a week. They want a quality life.
Generational conflicts may also arise when a younger family members takes over the business. Business and communication models must be revisited to ensure that they better reflect the younger generation’s values.
Additionally, the tax rules that apply on a transfer to a family member are not as advantageous currently. Although changes are in process, this still needs to be considered for the time being.
Transfer to one or more key employees
Your employees already know your company, its culture and values. They can be very good candidates to take the business forward.
The transfer can be made to one or more employees or managers. These individuals are already committed to your company’s success and have the knowledge and experience to take over. This is a good way to highlight employees’ skills and helps retain the workforce.
That said, there is a difference between working for a company and becoming a shareholder or owner. There has to be a transfer of knowledge at that level. People need to know what they’re getting into.
The transition may also hit some stumbling blocks if the owner is not quite ready to let go and the successors are eager to assert themselves and make decisions.
Hybrid model
A mixed transfer involves transferring the business to family members and employees. This trend is becoming increasingly popular. Almost 66% of transfers are hybrid models, and this type of transfer combines the best of both worlds.
The business’s continuity is assured, and if the family members lack some experience, it is possible to put trusted employees in charge of certain key departments.
The challenge here is to ensure that you have the right people in the right place to perform the various tasks associated with a business, and not to be driven by emotional considerations.
It is also important to communicate well with the succession team so that everyone knows their role and thus avoids potential conflicts.
Sale to a third party
If the new owners come from outside the company, they must have the experience and knowledge to take over the business, taking its the specific needs and characteristics into account. They must also be willing to invest the time, money and effort.
One of the major challenges with this type of transfer is to establish and maintain trust. The buyer must not only have extensive knowledge of the business and the market, but also the leadership skills to motivate the employees.
It is also important to note that the transfer process can be longer in this context.
Professional expertise
Regardless of the transfer model, having a team of skilled professionals (accountant, lawyer, financial planner, tax specialist, transfer consultant, psychologist, etc.) is the key to ensuring that all goes as smoothly as possible and to have an effective succession plan.
People at the heart of the process
A business transfer should be prepared up to five years in advance. Put people at the heart of the process. This is probably the most important advice to remember.