Many business owners intend to sell or transfer their business to a family member in the future. Owners of businesses employing family members often place significant importance on keeping the business in the family compared with businesses not employing family members. Following are some suggestions on how to keep the family business in the family:
Involve your heirs in your succession planning
Don't automatically assume that one of your family members wants to take over the business. Once you have identified a successor, involve them in your succession plan and share your long-term goals with them, with family and key employees. Their input can minimize potential conflict and help maintain stability in the business and the family.
It's never too early to start building your succession plan
If you start to design your succession plan many years ahead of your expected exit date, you can build the interest of potential successors within the family by involving them in meetings and asking for their input.
Obtain professional advice from your legal advisor, tax specialist and possibly a family business facilitator. A facilitator can help you discuss issues with family members, provide objectivity, find constructive ways to resolve conflicts, review plans, establish priorities and involve stakeholders in the succession process.
Create and implement a business succession plan
Develop a leadership profile. What do you want to see in a future leader?
Identify suitable candidates. Who demonstrates the commitment and leadership qualities you're looking for?
Prepare management and personal development plans. Project the company's future management needs and guide the career paths of individuals to meet them.
Mentor and evaluate candidates. It can be difficult for a parent to develop and assess their skills objectively due to conflicting roles of parent/business owner. Choose someone else as mentor.
Select a successor. Your choice could be clear due to years of preparation but, if not, use set criteria to make your selection.
Communicate your plan. Ensure everyone understands the plan and their proposed roles.
Manage the transition. Withdrawing from daily business activities can be difficult. A gradual transition may work best.
Continuing involvement after succession
Will you have an ongoing role after the transition, perhaps in an advisory capacity? This can gradually reduce the business' dependence on you and may make it easier to separate your identity from the business role you've held for so long.
Plan for contingencies
Incorporate personal planning considerations into your succession plan. Have you prepared a will and a power of attorney/mandate? Should you have a buy/sell agreement in place? Your tax planning may also include discussion of family trusts, estate freezes and structuring your business succession to maximize the capital gains exemption.
Benefits of a business succession plan
Business owners who implement a succession plan well in advance report significant benefits. The business enjoys improved financial stability as it moves through a well-planned and managed transition and relationships with employees and family members also benefit. A large percentage of business owners feel that a succession plan has helped them provide for their family's future and many report that they have been able to minimize their future tax liability and improve their business' financial stability.
This article was supplied by Colin MacAskill, a vice-president and an investment advisor with RBC Dominion Securities Inc. Member CIPF. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article. Colin welcomes your calls on his direct line 604-257-7455.
