|
 |
will your family business survive?
|
|
PREPARATION IS THE KEY
Milan Topolovec - special to The Ottawa Construction News, April, 2006
One of the greatest challenges that face family controlled businesses is in the transfer from one generation to the next. Here are some of the alarming statistics:
Within the next 15 years, more than 50% of the small business owners will retire. By the end of this decade, approximately 1.2 trillion dollars in business assets will change hands. Only 20% of business owners have a clear succession plan in place for their business. 60% of small business owners plan to sell their business interests to family members or insiders.
(Source: 2004 CIBC Small Business Outlook Poll, Statistics Canada and CIBC World Markets)
Why do so many family businesses have a difficult time in making the transition and close their doors?
There are two primary reasons that have a negative impact on a family controlled business: lack of succession planning, and a qualified family successor is not available or not interested.
The act of succession planning is a process that requires input from a number of people: business owner, active as well as non-active family members, legal advisors, accountants, investment advisors, insurance specialists and your bankers.
The sooner that the business owners create a succession plan, the greater will be the success of passing the business to the newleaders. The actual process can take anywhere from 3 months to even 3 years or longer. Even when the succession plan is completed, the process of monitoring the progress has to continue.
Business owners devote much of their attention and time to deal with every day tasks that are associated with running their business, which takes away their ability to focus on the planning process. The succession planning is of vital importance to them, their families, employees as well as all the other stakeholders in their business.
By now you may be asking yourself, how do I create a succession plan for my business?
The first step is to engage an advisor or a group of advisors that will drive the process. One person in your advisory team has to act as a quarterback to bring everyone together as well as continue driving the process. This leader has to be able to work with your other professional advisors as well as bring in outside specialists when required.
Here are some of the items that one should consider when creating a succession plan with their professional advisors:
Clearly identify the successor from the family, key person from within the business or even from outside of the existing team. Design a corporate vision for the future. - Identify what, if any, role the heirs will play in the new business structure. Give adequate consideration to business owner’s estate planning needs. Make sure key employees and other stakeholders are comfortable with the new direction and leaders. Complete a detailed insurance audit and a needs analysis. Create or review existing shareholder’s agreement. Develop a strategy and a mechanism to train the successor.
Family dynamics have a direct impact on the succession planning process and careful navigation is required throughout the creation as well as implementation of a plan.
Here are some of the situations that a family business can face when creating the plan:
There may be a large age difference between siblings, which limits the options of giving control to a younger child thatmay be a minor. Business owner may now have children with different spouses, how are they treated? One or more siblings is working and contributing to the growth of the business while others are not actively involved.
The children can be treated fairly however that may not always mean equally.
Siblings working together in the business have a rivalry that creates a negative environment within the firm. Children do not share same vision as their parents. - How do you ensure that key employees will support the new leaders? Who is the most suitable individual or group of individuals to take over the operation? The original owners have a difficult time accepting that they will not be involved in any or all the decision making process. The most suitable successor may not have any interest in getting involved in the business.
The above are only some of the issues that may arise during the planning process. It is critical that all stakeholders are participating in the creation of the succession plan and communication with family members. The object should be to avoid a family feud while creating a favorable transition process.
For a family business owner, one of the most difficult tasks is to manage the delicate balance between business and family needs, understanding that they may be different.
One thing has to be clear, the succession plan will bring about change for everyone and this has to be handled with care.
Succession planning can get complicated, but working with knowledgeable advisors makes life easier. The advisors have to understand, that you, the business owner, are the star of the show and every effort is made to protect your interest.
The better your advisory team, the greater value you will achieve from the planning process.
We have acted as quarterbacks to help direct the process as well as members of our client’s advisory teams in the creation of succession plans. Getting all the advisors in the same room with the business owner yields the best results. The desire to create a succession plan has to be sustained and cannot be derailed.
Milan is the founding principal of TK Group, which was established to provide integrated financial services for professionals, self-employed and corporate clientele. He has been in the financial planning industry for over 23 years and has been recognized as a valuable member of his client’s professional advisory team. His knowledge extends far beyond a placement of a product.
When a product solution is required, Milan’s relationship with a number of leading insurers, enables his organization to secure the best solution to meet his client’s needs. He is a member of a number of organizations, such as the Tax and Estate Planning Society, Innovators Alliance, TiE, Barrington Wealth Partners and Canadian Advanced Life Underwriters.
Milan continues to be involved in coaching community sports, and has done so since his retirement from professional football. |
|
|
|
|
|
|
|