7 questions to begin building your transition plan

For every business, no matter its age, transition should always be top of mind, experts say.Transition plans act as a road map, and it will help to identify the goals of the business owner and mitigating risk.

As a core part of your business plan, transition plans ensure stability during periods of change. When the plan is integrated into your business plan, other partners, family members and senior staff have peace of mind and know the path forward.

“I think the best practice is to always be thinking of succession,” says Jennifer Dunn, a Partner in the Charlottetown office of BDO Canada, adding she likes to keep in mind that someday, a business will be sold.

Involuntary situations, including death, illness or disability, may result in an unanticipated sale of the company. Developing a structured plan early in your business’ life can provide peace of mind when a sale of the company is unplanned. Transition plans provide an approach to managing the changeover, ensuring that the company's and its stakeholders' interests are protected while also helping position the business and new ownership for future success.

Dunn says that at the bare minimum, transition plans should be in place three to five years before a business owner considers selling. However, it is often difficult to predict when your business will transition.

"Transition plans act as a road map, and it will help to identify the goals of the business owner, including clarifying roles and responsibilities and mitigating risk," Dunn says.

Why you need a transition plan

Conversely, failing to put a transition plan in place exposes a business to numerous risks that could impact its overall operations, financial stability, market position and long-term viability.

"Some of the risks include operational disruptions, loss of key personnel, cash flow issues, reputational damage and lack of clarity about leadership roles and responsibilities," Dunn says. "And in a worst-case scenario, the lack of a transition plan can lead to business failure."

Here are the top 5 benefits of having a transition plan:

1. Help minimize disruptions of the day-to-day business of the company

2. Ensure your personal and business goals are met

3. Anticipate potential challenges and risks

4. Develop strategies to mitigate potential challenges proactively

5. Provide a deeper understanding of the current state of the business, including market position and financial health

Where to start

Transition plans are a multi-step process, which vary in duration and complexity depending on the nature of your food and beverage processing business. The process can take anywhere from a few months for companies with straightforward infrastructures, to several years for more complex organizations. That’s because transition plans are designed to consider the state of the business today, including critical operational details, while also forecasting the company's future. Helping identify the key stakeholders affected by the transition and defining their roles and responsibilities will aid in cultivating a seamless transition.

One critical element of a transition plan, Dunn says, is to consider which stakeholders will be involved in the development of the transition plan. Engaging with advisors, like financial experts, food and beverage processing specialists, lawyers familiar with the processing industry and business consultants, can make the transition smoother. They assist with evaluating the business, tax planning, ensuring legal regulatory compliance and more.

Here are 7 questions to begin with when developing a transition plan:

1. What is the current state of the business, including operations, financial health, key personnel and existing processes?

2. What type of transition will occur? Will it be a sale to a third party, a transfer to employees or a transfer to family members?

3. Have you developed a detailed plan that includes timelines and milestones?

4. What are the various tasks that need to be reviewed for the transition plan? Who from the company will be assigned to complete these tasks?

5. Has the critical knowledge from the company been documented? How will you transfer this information from potentially outgoing personnel to the new owner?

6. How will you communicate the transition? Is there an internal and external communication plan in place?

7. How often will the plan be reviewed, monitored and adjusted (if needed)?

Transition plans are not something to be left as an afterthought. These comprehensive plans provide your food and beverage processing company with a road map, defining the essential aspects of your business, including roles, responsibilities and the vision of your operation.

Investing the time and resources to complete this process will provide your company with peace of mind, a deeper understanding of your business and the development of a comprehensive strategy to mitigate unanticipated challenges.

Article by: Anne-Marie Hardie