Succession planning the next generation.

SUCCESSION PLANNING. It's a topic getting so much attention these days the average boomer is overwhelmed. And, like any good self-centred boomer, most of us ignore the subject--opting instead for more pleasant images from the good old days--like Woodstock.

The boomer generation is the product of the post-war revival that saw birth rates and the economy skyrocket as production shifted from war material to consumer goods. These were heady times. As the Cleavers embodied the average family, a nuclear family with one working member, wealth generation and the good life were givens.

Fast forward a half century as this demographic group is poised to retire. The good news is, as the richest generation in history we have the fiscal capacity to enjoy our golden years. Or do we?

For many entrepreneurial types the bulk of their wealth is invested in their business and converting that equity into cash isn't necessarily easy. But, with a little planning, it can be done whether some restructuring, third-party capital, or a combination of both--a method that will be detailed at a day-long information session in Saskatoon later this fall.

"Most people with businesses believe there's always someone who will buy it. That's not always the way," says Dave Anderson of Saskatoon-based McFaull Consulting which offers financial and business guidance to its clients. "If you do get a serious buyer, take a look at it," is his advice.

Darrell Nordstrom at Assante Financial in Saskatoon says the issue of succession planning for business owners has moved from something to think about to one of the primary challenges facing today's entrepreneur. And, unfortunately, few are taking the time to address the subject.

At the end of the day, succession planning for a business is like any other aspect of business life--it's about supply and demand. Today's demographics suggest that we have a big generation of sellers trying to deal with a much smaller generation of buyers. In other words, it's a buyer's market and, when it's your life's equity tied up in the enterprise, this is important stuff because owners will find themselves facing the prospect of selling into a congested marketplace. That will mean a lower price if the business seller doesn't take some serious steps to get his or her house in order long before attempting to complete a transaction.

"It's a big-time problem," adds Nordstrom. "You (the business owner) have become the victim of your own success. The better you do, the harder it is to sell. If they (potential buyers) have the money, they'll just retire themselves."

As a result, he says much of his professional practice centres around conditioning exiting business owners to recognize that the buyer will be "paying you out with your own money--money you would have gotten if you'd just stayed there."

So, it becomes a dance involving two players--the seller and the prospective buyer who often must be groomed and nurtured to take over. And, of course, this includes figuring out a way to ensure the buyer will ultimately be successful and in a position to pay for your equity.

Anderson, who has a farming background and went through his own transaction when he bought and sold a fertilizer business, has seen it from both sides of the deal. The experience left him with the feeling the deals could have been handled more effectively and now spends much of his time assisting farmers and business owners exit the industry or facilitate intergenerational transfers.

His best advice for anyone thinking about succession? Start planning early and get professional help.

Both Anderson and Nordstrom believe today's reality means business owners will seldom be able to find a ready buyer and a golden handshake.

In most cases, they assert, today's owners will have to identify a buyer, and it may be a son or daughter willing to enter the family business, groom that individual and then finance any deal.

Some businesses, adds Anderson, are even bringing in young talent--often in its 20s--with a plan to put these individuals on the senior management team as they get ready to buy the operation.

Nonetheless, internal buyers can be among the best prospects for any business owner looking to exit the game. Management buyouts are becoming increasingly common and, for the most part, they make sense. Senior managers are familiar with the enterprise and are committed to the business. But, often, they don't have the money to execute a buyout. That's where organizations like SaskWorks and Prairie Ventures Fund join the game.

SaskWorks, a Saskatchewan-based labour-sponsored venture capital corporation, and Prairie Ventures Fund, and institutional private equity fund, are managed by PFM Capital in Regina. The firm has increasingly found itself involved in management buyouts or MBOs. A recent high profile deal was the MBO at Crestline Coach in Saskatoon where the management team, in partnership with SaskWorks, Prairie Ventures, and Kensington Capital, a Toronto fund that manages money for the Canada Pension Plan, bought out Crestline's founding partners.

Private equity funds like SaskWorks and Prairie Ventures bring two things to the table. First is money but the second is experience. They can access high profile industry experts or experienced businesspeople to provide the new owners with a depth of support and guidance they couldn't secure on their own.