Secure Your Business’s Future and Leave a Lasting Impact through Strategic Generosity

by Brad Friesen, Gift Planning Consultant

Business succession planning can unlock the power of strategic generosity and make a meaningful impact in your community while also optimizing your tax benefits.

Did you know that most small and mid-sized businesses in Canada are owned by individuals over fifty? This means that within the next 10-20 years, many of these businesses will experience an ownership transition due to life events such as:

• Retirement

• Transitioning a younger family member to the business

• A disability or illness

• The passing of an existing owner

Transition is inevitable for every business sooner or later. This is why a well-drafted succession plan is important for providing the necessary stability for a business to continue to succeed. Introducing generosity into succession planning can be a powerful way to support the achievement of a business’s philanthropic goals.

Consider Strategic Generosity

Many business owners give to charity on a regular basis, either personally or through their business. However, charitable giving is often overlooked when it comes to succession planning. It might be forgotten in the rush of enacting a last-minute succession plan, as there are usually many other pressing issues to deal with, or it could be that the professional advisors involved may not be aware of your charitable intentions. This is why it is important to proactively discuss your charitable giving plans with your advisors when designing a succession plan that can be incorporated into your overall business strategy. When done right, this will maximize the opportunities to support the charities that matter most to you while also ensuring that you do so in the most tax e cient manner.

How Does Philanthropy Fit into Your Succession Plan?

There are several options when considering charitable giving in your succession plan. You can donate di erent types of assets, such as:

• Cash

• Private company shares

• Publicly traded securities

• Life insurance.

Of course, each situation is unique, and the best strategy will depend on your business ownership structure before and after the succession plan, as well as assets held personally and in the business. Abundance Canada is here to help you design a personalized Generosity Plan™ that fits into your overall succession plan strategy.

Working with your professional advisors, a gift planning consultant at Abundance Canada will provide valuable input regarding:

• The type of assets that can be donated

• The timing of these donations

• When the donated assets will be converted to cash.

Donations can be timed to align with taxable events resulting from the implementation of your succession plan.

Get Your Family in on the Giving

Some business owners use their succession plan as an opportunity to establish a private family foundation, allowing their family to actively participate in their philanthropy. A Generosity Plan™ at Abundance Canada can be created to provide the same benefits as a private family foundation (with fewer administrative responsibilities and more anonymity for the family).

All businesses, no matter the size or complexity, require some sort of succession plan. As you consider possible scenarios for transitioning your business and develop a plan to address them, don’t forget that charitable giving is another “what-if” well worth considering.

Abundance Canada is a public foundation that o ers Donor Advised Funds (DAF). For nearly 50 years, we have worked with individuals and business owners with tax-e cient charitable giving. To find out more about creating a Generosity Plan™ to complement your succession strategy, or if you’d like to know more about the tax e ciency of the various gift planning options available to you, visit abundance.ca or call 1.800.772.3257 to speak with a gift planning consultant today.

Laure-Anna Bomal, CFIB’s research analyst. “Also, when planning does start, there are other obstacles.”

• 75 per cent of SMB owners will leave their business for retirement, while 22 per cent will leave because of stress or 21 per cent just to step back from their responsibilities as owners.

• 54 per cent says finding a suitable buyer is the most common obstacle to succession planning, followed closely by business valuation and reliance on the owner for day-to-day operations.

“Given the magnitude and complexity of the process, business owners may also be too busy running their business, do not have the time needed and may avoid or postpone any plans.”

The economy and recovering from pandemic and supply chain speedbumps certainly took a toll, particularly on SMBs. It could also be understandable – but risky – reasons for procrastinating succession planning. She points out the undisputed fact that the current value of some businesses is down, and owners may be holding off until their business is profitable again. “Conversely, there are businesses that are more profitable than ever, and owners may also be holding off to extract what they can from their success, before exiting.”

While most consultants and analysists stress the importance and urgency of SMB succession planning, they are reluctant to put all the blame on the leader. Recent stats and surveys illustrate the failure or lack of succession planning as often due to boards and stakeholders allowing it to fall-off their priority or agenda.

There are also other challenges, such as the lack of a structured process, ambiguity of accountability for succession planning, decision-making based on gut-feel over objective data, and other factors.

According to the CFIB survey, and unlike the fictionalized scandals and in-fighting of TV’s Succession family, real families are not such significant speedbumps in real success planning. “Only 11 per cent mentioned that the conflicting business vision of family members was a barrier to succession planning,” Bomal notes. “When business owners are planning, they will reach out to accountants, lawyers, etc.

“The paperwork and contracts associated should protect them from any family sensitivities and alleviate the problems that arise from it. Our survey showed that most, 49 per cent, of owners will exit their business by selling to an unrelated buyer and only 24 per cent will sell to a family member.”

There is expert consensus. Businesses with good succession planning practices perform better financially compared to businesses which have poor succession planning. But, since procrastination is a documented, major risk, developing a solid succession plan also works out to smart risk management.