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As a business owner there are plenty of pressures competing for your attention, making it hard to find time to think about the future. That’s especially true if it’s a future where you’re no longer at the helm. But not only is retirement inevitable, is can also happen sooner than you think should unforeseen circumstances crop up. For these and other reasons, it’s good to have a plan in place to protect the company long after you’ve moved on.
Below we share three best practices you should master to protect the future of your business. For more on each of these points, including action plans, download our free guide: Three Best Practices to Protect Your Small Business.
Best practice #1: Protect your company from future tax compliance fines and issues
Payroll is often one of the biggest challenges for a small or family-owned businesses. This is both a short- 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 policies, regulations, 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 to the business. Canada Revenue Agency (CRA) fines, lawsuits, and provincial employment standard complaints can have a significant financial impact to your company. 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 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 employers should have one in place regardless of whether their employees are full-time, part-time, hourly, salaried, fixed-term, students, or family members. 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.”
Learn more about how Powerpay Services, HR Advisory, can help.
Best practice #3: Have a succession plan
No one works forever. Whether it’s the result of a planned retirement or an unplanned illness or departure, succession is inevitable. Yet, only 30% of small businesses have a succession plan in place, according to a 2021 PwC study called “From trust to impact: Why family businesses need to act now to ensure their legacy tomorrow.”
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.