Succession planning in the family business world is a daunting undertaking and, like other difficult initiatives, family business owners often elect to ignore the issue or procrastinate in having the required conversations. In 2014, Deloitte Canada published its Family Business Survey of 120 family-owned companies and found that 17% had a formal succession plan, 50% had an ‘informal’ plan and the remaining 33% had no plan at all. In other words, 83% of those families had at least one generation of their family uncertain as to how the transition of the family business was going to be made to the next generation.
A common reason for not moving forward with the transition of the leadership of the family business is that “my kids just aren’t ready” to assume all of the responsibilities and challenges associated with the business. But is that the real or only reason for holding back in the succession plan?
Here are some thoughts on various reasons used to delay the transition of the business:
- “They’re just not ready”. While that may be true, have you ever had a conversation with your children as to what they would need to do to prove they are ready? Perhaps there are some education or training requirements. Perhaps there needs to be some more experience in key roles in the day-to-day operation of the business.
- “He is not interested in the business”. It may be that your children have pursued a different career path and have other interests, but that is not to say that they don’t have a vested interest in the family, whose livelihood is dependent on the success of the business. If your child has obtained experience in other fields or post-secondary education, could that also be a boon for your business?
- Fear. What if my son/daughter ruins the business that we have worked so hard to build? It certainly can happen. The Bronfman family owned Seagrams Distillers and the Asper family owned CanWest Global, both of whom failed miserably when the transition was made to the next generation. Conversely, the transitions made in the Weston family (Loblaw/Superstore/Shoppers Drug Mart) has resulted in growth of the business every time.
- We still need the income to retire. Most families do when they transition the business to the next generation. Lawyers and accountants can certainly put together plans that will allow your children to become the owners of the business without an immediate tax consequence but the generation and distribution of profits in the business certainly need to be addressed in every succession plan.
- What about our other children? Very few parents will want to simply give the business to one of their children and leave nothing to their other children. Conversely, families don’t want to simply close the doors of the business if they cannot find a buyer for the business.
All of these are legitimate concerns for every family business owner in the transition of the business and none should be taken lightly.
But all of these concerns can be addressed by initiating meaningful conversations with your children and creating a formal succession plan that includes the controls you require and the opportunities your children require.
In starting these discussions, you may be surprised to find that your children are keen to get answers to their own questions.
If you are ready to have the discussions with your family about the succession of the family business, you may want to retain the services of a FAMILY ENTERPRISE ADVISOR™ to assist you and your family in formalizing a succession plan that everyone is prepared to adopt. FEA’s have the knowledge and training to address many of these issues and have a network of other professionals that can address issues that are not within their own professional discipline.
For more information about FEA’s, or to find a FEA to work with your family, go to https://family-enterprise-xchange.com.
If you have a question or issue that you would like to read about in future columns, please feel free to email me at firstname.lastname@example.org.
Until next time.