Business Succession Planning:
The Business and Family Succession
This article is one of a series of articles on business succession planning. It is meant to guide business owners through the process of maximizing their personal financial security upon the transfer of business ownership.
By Joe A. Salib CFP
Most Canadian business owners view their business primarily as a source of accumulated wealth for retirement or estate purposes and many say that it is important to pass the business on to other family members. Despite the best intentions of both owner and successor, the many personal issues that go hand-in-hand with family life complicate transferring a business to the next generation.
Family succession isn’t a feasible option for every business. But if it’s a possibility you’re considering, you should start addressing family succession issues now rather than later. The key to success? Understand the factors that complicate succession planning when business and family mix - then plan accordingly.
Your business – it’s not child’s play
It may be tempting to encourage one or more children to follow in your footsteps. But if it looks like your children won’t have the skills to run the business, it is probably better to look outside the family. Look at the suitability of family succession objectively. If your children don’t have the business desire or aptitude when they reach adulthood, it is risky to assume that it will somehow develop over time.
If you want to help your children, you may be better off selling the business to a qualified third party and allowing your children to enjoy the proceeds when they’re eventually passed down to them.
Timing can be everything
If you decide that family succession is the best option for your business, consider the timing carefully. If you bring children into the business too early, they may lack the broader work experience that many business owners bring to their business when they start their enterprise. This might make you reluctant to place your children in a position of responsibility, leading to slower development and possible job frustration. If you delay entry into the business too long, you run the risk of your children seeking and developing another career opportunity that they won’t want to leave.
While the right time for the transition will vary by business, try to ensure that the end of your children’s learning curve coincides more or less with your ultimate departure from the business.
Focus on management responsibility in addition to ownership
In many ways, you may find it easier to give up ownership of your business than giving up your management authority. One of the greatest challenges in passing a business to your children is giving up control over decision making.
The problem? Your children won’t be in the business long if they don’t have the authority to make the decisions they feel are appropriate. You may not agree with the decisions that are made, but once your children have enough business experience to handle significant business responsibilities, they should be given the management responsibility, and the opportunity, to carry out their plans.
Don’t go it alone – get objective professional advice
There are many sources of objective advice to help you sort through the questions of family succession. In most cases, your best advice on family succession issues will come from outside of the family. Outside advisors, such as your company’s board of directors, your business’s external accountant, or your financial security advisor, can help you identify any family succession problems and help ensure that sound business decisions take priority over any personal family issues that may arise. Once again, to hire a specialized external expertise to facilitate the overall process could be your most valuable decision for the future.
Our next article – Your business and retirement
Joe A. Salib is a Certified Financial Planner active in investments and insurance strategies for individuals, business owners and professionals. He can be reached at 416-912-1818, email: joe.salib@sunlife.com
2600 John Street, Unit 207, Markham, ON L3R 3W3 T: 905.475.5222 F: 905.475.6369
