Family Business Succession

If you own and operate a family business, part of your long-term strategy is to determine who will run the business when you decide to step back from the day-to-day demands. Transitioning the business to your children may be a very attractive option for a whole host of reasons – both personal and financial. But keeping the business in the family also adds complexity as you seek to balance the overlapping roles and expectations of family members. To get you started, here are a few key questions to consider.

What is your timeline?

How much longer do you want to work in the business before retiring or stepping back? The earlier you start planning, the more options you have available. It’s also important to consider how you see yourself transitioning from the business. In other words, what does “retirement” look like to you? Do you see yourself making a clean break and never working again, or gradually reducing your hours and role in the business? Your eventual successors will want to know this.

Who will take over?

In my 20-plus years as a business advisor, I’ve found there are two major causes of struggle and failure when it comes to succession. First, do your children have the aptitude, knowledge and skills required to successfully lead the company? Before beginning any succession conversations, consider what the business needs and what criteria you would use to pick a successor if none of the individuals involved were family. Then you can objectively evaluate your children to determine who is best qualified, and/or identify any gaps in their leadership and management abilities that need to be addressed.

After you’ve identified a potential successor, you need to address the next big question: do they share the same vision for their future? You can’t force succession planning on your children, and not every child wants to take over the family business. If you’ve never asked, make it a priority to start the conversation. If it turns out none of your children are interested, it’s good to know this up front so you can pursue a different exit strategy, such as selling the business to a key employee or a third party.

On the other hand, if you’re fortunate to have multiple children active in the business, you’ll need to determine who is best qualified to lead the company, and who may be better suited to other roles. As a business-owner parent, you need to treat your children fairly, but this does not mean they all deserve equal responsibility in the company. The best thing for the business and the family is to match your children to the roles where they are best suited to succeed.

Doug Tyce, CPA, CA MNP

What about children not actively involved in the business?

It’s equally important to talk openly with children who are not involved in the business. What are their goals? Were do they fit in? How might they be impacted by decisions around the family business? Again, the key here is to seek fairness, not equality. In many cases, this can be achieved by balancing your estate plan, such as providing those children with a larger share of your non-business inheritance such as property, RRSPs, and savings. Dealing with this up front is critical to maintain family unity and avoid conflicts down the road.

Your succession plan is a key part of the long-term success of your family business and there are no short cuts. The best way to secure the future of both your business and your family is to start early, strive for open and honest communication, and seek fairness for all parties.

Doug Tyce, CPA, CA is a partner with MNP and lead’s the firm’s Real Estate and Construction practice on Vancouver Island. For more information, contact Doug at 250-734-4368 or doug.tyce@mnp.ca.