The plan called for three next-generation family members to step into upper management roles at Iceculture Inc. while the company's founders gradually eased into retirement. But then life – and the recession – got in the way.
"We started succession planning in 2007, then my wife became ill so we sped up the succession planning process and handed the company to the kids while remaining minority shareholders," recalls Julian Bayley, co-founder of Iceculture, a Hensall, Ont., company that creates elaborate ice sculptures for commercial and consumer events. "Then the recession hit and the succession plan started to take on a different shape."
As Iceculture worked to recover from the recession, one of the founders' children accepted a job offer from a bank while another left the company to look after her young children. Today, only one of the founders' children, Heidi Bayley – who has been Iceculture's president for more than five years – works in the business.
"There are five children altogether and only three are official shareholders," says Mr. Bayley, whose wife and business partner, Ann Bayley, died in 2011. "But the other two need to be taken into account in the succession plan as well, and that is difficult because right now we are still recovering."
Planning for a company's long-term continuity is never easy, which may be why a large majority of businesses – as much as 80 per cent by some estimates – don't have a succession plan. For small businesses the challenge of succession planning is often magnified as owners focus all their energies on running the enterprise, leaving scant time and resources for figuring out what happens when they're ready to retire or sell.
In a 2011 Canadian Federation of Independent Business survey of small- and mid-sized business owners, almost half said they plan to exit their business within the next five years. Yet only 9 per cent said they had a formal, written succession plan. About 40 per cent of the 8,300 survey respondents said they had a plan, but it was informal and unwritten.
"This could have massive implications, with at least $3-trillion at stake for small business owners and the economy," says Queenie Wong, senior analyst at CFIB.
Heidi Bayley carves a CN Tower ice sculpture.
The absence of succession planning among many small businesses may also have to do with a fear of the unknown, says Geordan Robertson, director for small business at Meridian Credit Union in St. Catharines, Ont.
"In addition to not having the time to devote to succession planning, business owners are probably worried about a number of things, like will they be able to sell the business for what they think it's worth, or will the business tank after they leave," says Mr. Robertson. "These are very real and valid fears, coming from people who have invested so many years and so much money into building their business."
His advice to business owners: Start sooner rather than later. A good time to start succession planning is when the business has passed its fifth profitable year, Mr. Robertson says. At this point, it's a good idea to bring in a business valuator to assess the company's worth.
"With five profitable years, your business has passed its startup phase," Mr. Robertson says. "And by this time you've got a team in place, so you can take the time to focus on the business valuation and creating your succession plan."
Starting early with succession planning gives business owners time to identify employees who have what it takes to lead, and to allow these people to prepare to assume ownership in the future, says Mr. Robertson. For example, if the succession plan is for employees to buy out the owner, those workers need to ensure they'll have financing in place when the owner is ready to sell.
Ample lead time is also necessary for tax planning leading up to the sale, Mr. Robertson says. In some cases, it may make business sense to restructure a company before a sale or to transfer assets from the active corporation to a holding company. Canada Revenue Agency rules generally require that these changes take place at least two years before a company is sold.
Heidi Bayley and her father examine a freezing tank at the company's headquarters in Hensall, Ont. (Geoff Robins for The Globe and Mail)
"Legal and tax considerations are so vital and could make the difference between a profitable and a not-very-profitable succession," Mr. Robertson says. "What a shame it would be for someone who has built up this legacy with a lot of sweat equity, and they end up with so little because succession planning wasn't done properly."
Ms. Bayley at Iceculture says it's important to let customers, employees, partners and vendors in on the succession plan. Five years ago, when she and her two siblings took over the business from their parents, one of the first things they did was meet with the company's account manager at the bank.
"It was basically us coming in to say, 'We now have the loans, and what do you need from us so you don't panic?'" Ms. Bayley says. "We were an unknown entity to the banks, which need assurance, and it became a matter of each one of us getting [key person] insurance so that if anything happened to us their investment would be okay."
The pair say the company is on solid footing today, with new revenue streams. (Geoff Robins for The Globe and Mail)
While Iceculture's original succession plan did not quite go as planned, Ms. Bayley and her father say the company is on solid footing today, with new revenue streams that include group tours that bring busloads of tourists to the plant, and consulting and training services for overseas companies that want to get into the ice sculpture business.
"When parents create a successful business, their hope is that when their kids take over they'll continue on that path of success," Ms. Bayley says. "You start off running someone else's dream, and hopefully you'll find your own passion in the business so it becomes your dream."