Are you ready for your kids to take over the family business?
Read time: 4 minutes
Baby boomers are the primary owners of Canadian businesses. Many are preparing to retire in the coming years, with more than 40% expecting to transfer the business to a family member.
Even though your children may still be young or still studying, succession planning is not a process but an event. It requires many months, if not years of preparation.
Margaret Snell, who specializes in family business succession planning at BDC Advisory Services, answers six common questions about how to start your planning:
1. What should be on your to-do list?
You will also need to contact your lawyer and accountant to do the required estate and tax planning, she says. You should also consider hiring an advisor to help with succession planning and all of its details.
Set a date for exiting your business, while ensuring that your children or child are ready to take over.
2. How do you start the conversation?
Pick a time and place convenient for everyone. Be prepared for what could unfold when you ask your children if they want to take over the family business.
“It’s sitting down and having maybe the most raw and open conversations you’ve ever had in your entire life with your father and mother in a business setting,” Snell notes.
Don’t let it get personal. Family business succession can bring out underlying conflict. Get professional help, such as an advisor or mediator, if needed. Do it in a neutral setting to manage expectations and minimize tension, she says.
Family counselling may also be needed to help parents let go of their business. “It gets to be quite emotional because this is their legacy that they’re talking about. It’s what they have spent decades building. It can take a lot of time to finally come to a comfortable decision on everything,” Snell says.
3. What if my kids don’t share my vision of the company? Or, what if they don’t really want to take over?
How will your child or children make the company grow once they take over? What do they want to achieve? Snell says that your company may go in a new direction, and you may or may not agree with the decision. “It’s not just about continuing the vision of your father or mother.” Recognize and support your children’s goals for the company you started.
Your kids may want a different career path, but feel pressured to take over the family business. Ask your kids this question and be prepared for the answer. Here’s what Snell says could result: “It can happen that adult children don’t really want the job, but do it anyway, and that leaves the parents in a leadership role.” That will mean as parents you aren’t really leaving your business for retirement.
4. Say No to a family discount
Your sale price should be fair market value, even if you’re selling to your child or children. Snell says the business shouldn’t be sold at a discount because the money is usually needed for retirement. “The only difference is that you might set it up so that you will be paid over many years instead of a lump sum.”
5. Respect the new family CEO
The new boss is not the old boss. “Ideally, if you have done succession planning correctly, you should step away entirely,” Snell notes. By staying on either as board chair or in some other capacity, it still allows for meddling and can prevent growth from occurring under the new generation’s decisions. Your family successor may re-define the CEO’s role and that’s something you need to accept.
6. Finishing up your to-do list
Your senior management team will need to work with the new family CEO, but be prepared that team members could retire when you do. Your HR team should help your child or children takeover the company. Encourage your family member to take whatever courses needed to prepare for the CEO role. Do they need mentoring or to shadow an employee to learn more? “If your successor needs a lot of development that could take another year,” Snell says.