During PwC’s recent webinar Creating lasting value — Preparing your business for a successful transition, 80% of participants* said their company did not have a well-defined succession plan. Considering that upwards of 80% of Canada’s businesses are family-owned or privately-held and that according to the 2012 Business Insights Survey, about one quarter of those businesses expect a change in ownership within the next five years, the potential fallout has far-reaching repercussions.
“Succession planning among private companies has an impact on the Canadian economy,” says Sharon Duguid, director, PwC’s Centre for Entrepreneurs and Family Enterprise.
“Companies that transition to the next generation or a new management group without a succession plan experience a 29% to 32% drop in business in the first three years after handing over the reins. That loss hurts more than just the individual company.”
This drop reflects the void in leadership and the value of a strong talent pipeline. Part of the problem is that many owner entrepreneurs are building a business without thinking that their prospective buyers are going to be looking for a pipeline of leadership, says Brooke Valentine, partner, Consulting & Deals, PwC. “Having that strong leadership team in place is what will allow the new owner to unlock the value of the business—and buyers know this. They will pay a better price if the company has already developed a succession plan.”
In fact, one of the main components of a successful succession plan is the education and development of new leaders. Perhaps not surprisingly, one of the questions that emerged during the webinar was “how do you develop successors”?
Finding and developing future leaders:
Succession planning is not easy and there are several moving parts, but the benefits are worth it, says Duguid. “The business will be more transparent. People will know their roles and responsibilities and they will be more capable of continuing once the current leadership leaves. Customers and suppliers will have confidence that the business is not going away—and even better, that it’s in good, capable hands. There will be no cultural confusion and no dip in returns.” And that’s good for everyone.
* 54 individuals responded to the polling question
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