{"id":979,"date":"2022-02-23T14:56:08","date_gmt":"2022-02-23T21:56:08","guid":{"rendered":"https:\/\/www.connect4commerce.ca\/resources\/?p=979"},"modified":"2022-02-23T14:56:09","modified_gmt":"2022-02-23T21:56:09","slug":"family-business-succession-planning","status":"publish","type":"post","link":"https:\/\/www.connect4commerce.ca\/resources\/business-news\/family-business-succession-planning\/","title":{"rendered":"Family Business Succession Planning"},"content":{"rendered":"\n

Preparing for the Future of the Family Business.<\/h2>\n\n\n\n

By Bruce Tannas<\/strong><\/a><\/h6>\n\n\n\n

Currently, half of first-generation Canadian family businesses are expecting the next generation will be the majority shareholders in five years\u2019 time. And many Canadian family businesses are concerned about keeping their business in the family (Family Business Survey 2021\u2014Canadian insights<\/a>). So, many family businesses in Canada will be transitioning to the next generation with or without the benefit of family business succession planning.<\/p>\n\n\n\n

If you have family involve in the business, then you need to think about and discuss how the family business will transition to the next generation or even if it will at all. Therefore, it will be important to do some family business succession planning as it will be key to the long-term health of the business and the family.<\/p>\n\n\n\n

Multi-Generational Family Businesses<\/h4>\n\n\n\n

In Canada, we have family businesses that are big (e.g., Rogers, McCain\u2019s, & Sobeys) and small. We also have single and multi-generational family businesses.<\/p>\n\n\n\n

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Multi-generational companies start with the founder(s) (one owner and their spouse) which is known as the controlling owner stage. Then if the company is transitioned to the next generation of siblings this is known as the sibling partnership. Finally, the third generation is known as the cousin consortium (see figure).\u00a0 (for more information see – Stages of Development of the Family Business<\/a>)<\/p>\n<\/div>\n\n\n\n

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Family business transitions from one generation to another isn\u2019t always easy. There are some often cited statistics that suggest that only 1\/3 of companies make it through the second generation and only 13% make through the third generation. However, in an interview with Shauna Feth of the Alberta Business Family Institute<\/a>, Shauna says that \u201c\u2026there is really not good stats around transitions from generation to generation because we concentrate on the operating company. There also may be ownership, assets, and\/or wealth being transferred from generation to generation which are not accounted for in the statistics. \u201d<\/p>\n\n\n\n

But even when we look at the operating company alone, there can be generational resiliency. An article entitled Do Most Family Businesses Really Fail by the Third Generation?<\/a> asserts that family businesses often outlast that average tenure of non family businesses. They also tend to be more resilient in tougher times. The key is to have engaged ownership and a next generation that is interested in carrying on with the company.<\/p>\n\n\n\n

Viewpoints of All Parties\u2019 Matter<\/h4>\n\n\n\n

Family businesses are unique in that that involve personal relationships, money, and business relationships. That\u2019s because a family business is really three things: a family, an ownership group, and an operating company. Each family member can belong to one or more of these groups and therefore may have different perspectives on the family business (for more on that see A Look at Family Business in Canada<\/a>).<\/p>\n\n\n\n

For the benefit of the family, there needs to be conversations about where the family is going with the business and everyone\u2019s role in it. But sometimes \u201cthese conversations don\u2019t happen because we are scared of conflict. We are scared to ask the questions we might not like the answers too\u201d says Shauna Feth. If the family and the business is going to survive, through the long run, there is a \u201c\u2026need for conversations about future expectations of family members\u201d says Shauna.<\/p>\n\n\n\n

Some of these conversations can indeed be difficult. According to an article in the Harvard Business Review<\/a>, \u201cChoosing a successor to the CEO can be an extremely sensitive topic in a family business. The relative currently at the top may even be deeply resistant to the notion of being replaced \u2013 and vocal about it.\u201d<\/p>\n\n\n\n

Also, not all the family members are interested in being active in the business. In an article entitled Thriving or Trapped in the Family Business?<\/a> cautions about assuming family members want to or are even suitable to take over the business. \u00a0While there may also be circumstances where family members may be interested in taking a role (or taking over) in the company and haven\u2019t voiced that desire yet.<\/p>\n\n\n\n

Regardless of the outcome of the conversations about current and future family roles in the business, it is better to have the conversations than not. There may be lost opportunities for family member(s) to take over if these conversations don\u2019t happen. Also, Shauna says that \u201cI don\u2019t see that it is unsuccessful succession planning if a family has these conversations and decides that there isn\u2019t someone to take the business over.\u201d<\/p>\n\n\n\n

Family Business Succession Planning<\/h4>\n\n\n\n

Succession planning is the process of developing a written plan for an occasion when an owner decides, or is forced, to step down from an ownership and leadership role in the business. This transition will eventually happen regardless of whether or not there is a family business succession plan in place. Life happens and one or more of 4 d\u2019s (death, disability, divorce, or dissolution) could determine the future course of the company.<\/p>\n\n\n\n

According to Shauna, \u201cWhat you don\u2019t want is a failure to plan because that can have huge repercussions for your family.\u201d Like \u201c\u2026the widow that isn\u2019t involved in the day to day and the husband dies she doesn\u2019t know anything about the business\u2026who the accountant is or the lawyer\u2026don\u2019t leave your family in the dark because at a time of incredible grief because it becomes so much more stressful also trying learn to run a business.\u201d<\/p>\n\n\n\n

Shauna also has seen situations \u201cwhere one sibling is working in the business and the others aren\u2019t and the founder dies leaving the business equally to all the siblings without a thought to the contribution of the one working in the business\u201d. That\u2019s because no one thought about \u201cwhat is fair vs. equal because when you leave an equal share in the business to all the siblings it doesn\u2019t take into account their individual contributions (or lack thereof) to the business.\u201d <\/p>\n\n\n\n

So, these conversations need to be had and all the family members should be involved to some degree or another with the succession planning. These conversations should be held from the family perspective, the ownership perspective, and the operation of the company perspective.<\/p>\n\n\n\n

The key is to start as early as possible because a proper family business succession takes planning and time. Shauna Feth says you should \u201cstart today, start researching resources are out there and reach out to organizations, such as the Alberta Business Family Institute<\/a>, to help with the planning\u201d.<\/p>\n\n\n\n

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