With the number of pressures on small business owners, it’s hard to find time to think about the future of your business. It’s even harder to plan a future without you at the helm. But retirement is inevitable, and for those unforeseen circumstances that crop up, it’s good to know there’s a plan in place to protect the company.
Your priority as a business owner may be to grow and develop your business for generations to come. With that in mind, here are three best practices to take action now to protect the future of your business.
For more on each of these points, including action plans, download the free guide: 3 Best Practices to Protect Your Small Business.
Best practice #1: Protect your company from future tax compliance fines and issues
One of the biggest challenges for a small or family business can be payroll.
This is both a short-term and a long-term issue: According to a 2016 study by PwC called “The Missing Middle, Bridging the Strategy Gap in Family Firms,” more than a quarter of family businesses say maintaining compliance with government policy, regulation and legislation will be the biggest challenge for them over the next 12 months.
But failing to stay compliant can result in a huge financial hit on the business. Canada Revenue Agency (CRA) fines, lawsuits, legal action, and complaints to provincial employment standards can have a significant financial impact on your company’s bottom line. In 2014, the CRA assessed more than $21 billion in non-compliance fines, according to a Canadian Payroll Association event, hosted by Steven Van Alstine, CPM, CAE. And while it’s foreseeable that some deadlines might be missed, repeated non-compliance not only chips away at your company’s profit margins, but longer-term, it can tarnish an otherwise glowing record, making you less attractive as a company, should you wish to sell.
Best practice #2: Develop an employee agreement and handbook
Smaller businesses often lack a designated Human Resources department. The head of HR might be an appointed family member, and oftentimes it is the business owner. Additionally, in a blended company where family and non-family employees work together, there can be conflict over perceived preferential treatment.
As a small business owner, it might be difficult to separate your personal life and emotions tied back to the business, and conflicts are inevitable. Sound and clearly laid-out HR policies can help alleviate some of that risk. In fact, severance liability can cost a small company of 50 employees upwards of $1 million, however working with an HR advisory service to draft an employee agreement can save companies upwards of 75%, e2r Solutions® estimates.
“The most important document you need is an employee agreement and the second is an employee handbook,” says Stuart Ducoffe, Employment Lawyer and Founder of e2r Solutions®. “ALL employees should have one in place regardless of whether they are full-time, part-time, hourly, salary, fixed-term, student, family member or not. They also enhance the value for a company which means more money for the owner or owners in the event of a sale of a business.”
Best practice #3: Have a succession plan
No one works forever. Through a planned retirement or an unplanned illness or departure, succession is inevitable and it may not always come at the time you thought it would.
Yet, 43% of small businesses don’t have a succession plan in place, according to “The Missing Middle” report from PwC.
Jeff Noble, Director & Practice Leader, Business Transition Services for BDO Canada LLP, says, “Small business owners may first think about passing their business on to their children, due to how heavily invested in the business the family is, whether or not they spend time working there. Individual family members may depend on the continued success of the business in order to afford their mortgage payments or put food on the table. Despite knowing the great value of the business, children may still choose to take a different career path. And that’s okay – as the owner, it is your job to think about what the next steps are for your business, and that includes who will be running it one day.”
Think of your succession plan like a fire escape plan: Something you have for easy reference if the worst happens, but can evolve as your business (and plans for your future) do.