Family Business Succession Planning

For business owners considering or planning to transition a business to their adult children, in-depth planning and careful management of the transition are critical. We do consult with owners engaged in family business succession planning for an hourly or monthly fee basis. This is separate from our other services which are largely contingency fee based. If you are an advisor with a client who needs M&A advice in this area, please contact us. If you are a business owner, please ask your advisor to contact me to discuss whether my assistance would be valuable.

Advisors who work in this area may want to consider taking courses through the Institute of Family Enterprise Advisors (IFEA), available in British Columbia, Alberta, and Ontario. The FEA program takes a multi-disciplinary approach that allows business family advisors to provide solutions that are truly in their clients’ best interests. We have found this program very helpful.

General Family Business Succession Planning Advice

There is a wealth of information about succession planning on this site, but there are a few considerations specific to family business succession planning that we would like to point out here. The following are our top tips for owners who are considering or want to transition their businesses to the next generation. We invite advisors to share these tips with their clients.

Advice for business owners looking at transferring the business to the next generation:

Talk to your spouse and children about how they want to be involved in the business in the future. They may not feel the same way you do or there may be issues to address.
If you are planning to have one of your adult children take over as the leader of the company, be sure that he or she has the required skill set and the respect of your employees. If this is not the case, training and education are critical, and you should step back and let your child take more of a leadership position to build respect.
Remember that you can transition ownership to the next generation without requiring them to lead the company as you have. A leader can be hired!
If your adult children don’t have the skills and knowledge to successfully run the business, consider selling part of it to a private equity company. The right one will provide a structure and a disciplined process for monitoring financial performance and managing the company’s resources to achieve its goals.
Make the changes that will leave the business in the best shape possible before the transition. Clean up the balance sheet, pay off debts, make sure receivables are collected promptly, and replace fixed assets that are in poor shape. This positions the next generation for success instead of leaving them encumbered with a business that requires additional investment.

Work with your family to structure a deal that is fair to everyone, then put it in writing. If you have multiple shareholders you need a shareholders’ agreement to assist in resolving disputes.
If you’re doing an estate freeze, think of the tax consequences if you passed away tomorrow. There may be a deemed disposition and the next generation could have debt. Do they have the resources to pay for that? If they don’t, they will likely need to sell the business or bring in a partner. You may want to consider an insurance policy to provide the resources.
Get help with family business succession planning and transitioning. There are excellent resources available, such as Family Enterprise Canada. FEC helps family members in business together improve communication and offers the opportunity to learn from and share with a peer advisory group. Another resource is the Alberta Business Family Institute, which gives you the opportunity to hear from successful family business owners.