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Whether you are planning to step away from the business gradually or exit your business to explore personal interests or pursue a new venture, it's important to have a plan.

What’s your next move?

Chances are, whether you are just starting out, are midway through your business career or are looking to retire, you have big ideas for the future of your business.

This RBC Wealth Savvy Series is dedicated to succession planning for Caribbean business owners, providing an overview of decisions needed in the first 5 of 10 key areas you may face in the coming years as you plan your succession. It’s your time now.

What is succession planning?

You and your family have spent years working hard to build a successful future. You may be starting to think about retirement and considering how you might begin to transition and prepare for life after working hard on creating the path to a better future. Think of succession planning as a way of recording your intentions for retirement and how your family will transition the household ownership, management decisions and physical assets.

Even though the sale of physical assets may be straightforward, ownership and management transitions can be much more complex. Add family relationships into the mix, and you can end up with a multi-faceted puzzle that will take some time and expertise to sort out.

With succession planning, it’s always best to start early. That means creating a plan before you reach retirement, so you can take the time to work through the process and consider everyone’s needs. In some cases, this process can take several years. It’s often a good idea to involve other outside professionals, too, such as your lawyer, accountant, business succession specialist and your banker. No matter where you are on your succession planning journey, this guide will help.

Why have a succession plan?

Whether you are planning to step away from the family business gradually to explore personal interests or pursue a new venture, it’s important to have a plan. Households in the Caribbean operate using different types of arrangements — from sole proprietorships to partnerships and limited corporations. One thing’s for sure: your family business can be your most valuable asset when planning what’s next.

A formal succession plan can:

  • Improve the family’s general knowledge of succession planning
  • Provide financial security for you while sustaining the income for the next generation
  • Manage your wealth — and help to manage your taxes efficiently
  • Outline intentions for transferring property and assets to your spouse, children or other individuals
  • Set up the right debt structure so the next generation can prosper
  • Strive for fairness for all family members (fairness does not always mean equality)
  • Offer time to review your options to ensure the right decisions are made for you and your family
  • Identify outside players or consultants who may be able to provide specialized information about the transition plans
  • Give you a written framework for solving disputes
  • Help all players monitor the process and the progress of the transition

The first 5 (of 10) steps towards the future you want

Consider these first 5 steps, and you’ll be well on your way to a smooth succession plan.

1. Discuss your succession plans with your family

Involving your family in the planning and preparation of your succession can make the difference between a smooth transition to the next generation and a contentious one. To ensure an effective transition, start your succession planning discussions several years in advance of when you plan to retire. Then, decide who the players at the table should be, including spouses, in-laws, children (both those interested in staying involved, and those who will not be involved), off-business family and/or invested employees. An open dialogue is the best way forward for success. Considering everyone’s feelings, honoring individual skills and ideas and making this a collaborative activity can help strengthen the family bond.

What’s your next move?
  • Discuss key issues and opportunities with those closest to you
  • Schedule and hold a family meeting to talk about your succession plans
  • Write up your set of retirement or transition goals

2. Get your critical papers in order and make them easily accessible

Being armed with accurate information can make decisions easier. Sharing that information with others will be key to a successful succession plan. Collect information on your business, and ensure it’s up-to-date. This may require you to contact other business partners, such as your lawyer, accountant, banker and consultants. Information that helps you analyze the current financial situation of your business will help determine the viability of the succession plans and how they will sustain both the retiring generation and the next generation that’s stepping up.

What’s your next move?

Here is a suggested list of records you need to create a succession plan. This is not a complete list, as it will vary by family and business, but it will give you a place to start.

  • Wills and directives
  • Partnership agreements
  • Financial statements
  • Income tax returns
  • Business appraisals
  • Business plans
  • Insurance policies
  • Lease agreements
  • Employee contracts
  • Mortgage and loan information
  • Asset list (equipment, buildings, land and more)
  • List of key suppliers and consultants

3. Know the current value of the business and if it can support all family members who want to manage it

Do you know whether your business has the financial resources to adequately support the incoming generation of owners while providing a comfortable and secure future for those transitioning out of the business?

Consider any anticipated family changes that could impact future revenue or savings, such as marriages, the birth of children/grandchildren, fluctuations in health, changes to living arrangements and more.

The goal is to ensure the business is profitable enough to support the succession plan and future generations. If it isn’t, you’ll need to make changes to ensure the business can support these plans — before the funds are needed.

Your accountant, banker, financial planner or business valuator can help you arrive at a fair market value for the business and provide suggestions on maximizing business value.

What’s your next move?

Contact your banker, accountant and financial planner to review the valuation of your business, and determine how the business can contribute financially to the succession plan.

4. Consider how much future income you’ll need to retire after the transition

There are many retirement cash flow calculators to help you determine your post-retirement income, but much will be determined by your plans for your retirement. You’ll also need to consider the amount of debt the next generation can support.

Discuss your retirement plans with your family. Are you planning to travel? Do you want to continue living where you currently live, or are you considering moving? Should the business pay you a lump sum amount or installments over time? Do you want to maintain an investment in the business (along with the risk that entails)?

Next, gather the related costs for each scenario you want to explore. Adjusting to a reduced income (if necessary) may not be easy, but understanding your new post-retirement cost of living will give you a realistic handle on what the business — and next generation — can afford.

What’s your next move?

List your retirement plans — best-case to least desirable — and the cost of each option.

Assess what’s realistic based on the business evaluation you’ve received previously, and adjust where necessary

5. Considered the tax impacts, and financial and legal options for the transition

Tax implications, financial and legal options and obligations will depend on the type of household or family business you own and how you want to transition your business.

This is an area where it is best to seek out the advice of a financial advisor with a comprehensive understanding of any tax laws related to your specific industry.

What’s your next move?

Determine your transition plans with as much detail as possible, then seek the advice of a financial advisor or lawyer.

Are you looking for one-on-one advice on what pathway you should take? Connect with your Private Banker to talk about your wealth plan.