Tips In Starting a Succession Strategy

Family business succession is the topic at the November Distinguished Advisor Workshop – and it’s an important one – as by the end of this decade it is estimated that over 350,000 business owners will be over the age of 55, and within ten years over half a million business owners will exit their businesses, according to a report in 2013 by CIBC World Markets.  

These firms employ over two million people according to the report. Successful business transition, therefore, is important to our economy.

Jenifer Bartman, co-author with Larry Frostiak of Master Your Investment in the Family Business, will discuss the issue of successful transition and business valuation in Winnipeg, Toronto, Calgary and Vancouver this November. Following is an excerpt from the book, which will be provided to attendees at the event:

Family businesses may indeed outgrow the management skills of their owner, or may experience a failed succession attempt as time goes by. Proactive discussion and decision-making that preserves not only relationships, but the investment in the family business is required before disaster strikes.

Consider the following discussion points to begin developing a succession strategy:

• Define the threat. People-related crisis situations have the potential to derail a family business and can represent a significant threat to relationships, finances and the survival of the business.
• Define the solution. A sound succession plan can mitigate the impact of crisis situations on a family business.
• Articulate the benefits. The succession plan not only helps the business to continue to operate in a timely manner, it also communicates the wishes of the family business leader, eliminating the need for family members to struggle for the best course of action when they are experiencing heightened emotions or loss.
• Don’t make it personal. Separating the life cycle of the family business leader from the life cycle of the business can bring focus to what the business needs to do to achieve stability and longevity. The two life cycles need not be the same.
• Document the procedures. Proper documentation, including policies and procedures, and legal agreements, are required to protect the business from crisis situations.
• Have a team. In the case of disaster, get help. A qualified professional advisor can objectively help to get the business back on track. The professional team can include accountants, lawyers, insurance specialists, conflict managers, life coaches, and so on.

Tips to Stop Family Business Damage in Your Absence

• Have a Wishlist. Your wishes for the business in your absence, by way of a sound succession plan, will or other documentation, makes your wishes clear and takes a considerable burden off family members.
• Demonstrating Leadership. The best sign of a family business leader’s success is when a team has been built that can competently take the business forward, in times of planned succession or crisis. A needy business represents weakness and missed potential.
• Providing a Sound Safety Net. Find professional help – including management and advisors – who can provide the safety net when family dynamics spiral out of control.

Traps to Avoid

• Don’t Grow a Dependent Business. Some family business leaders may have a need for the business to be dependent on them. This is not in the best interest of the business, and speaks more about the personal needs of the family business leader than the needs of the business.
• Don’t Skimp on Great Legal Advice. Regarding legal advice as an unnecessary cost of little value is a naïve approach to risk mitigation. Sound legal advice, in terms of proper agreements, documentation, and advice to guide decision making can save a business from the financial ruin that can result when bickering family members, unexpected illnesses or divorce happens.

Take Away:  When you view the business as a separate entity, rather than an extension of yourself, the opportunity exists for the business to move forward and grow in a manner that is in its own best interest, and to the ultimate benefit of the family.

Reference:  Master Your Investment in the Family Business, by Larry Frostiak and Jenifer Bartman. © Knowledge Bureau Newsbooks. All rights reserved.