How to start your family business succession planning
Talking about transferring the family business could be the most emotional conversation of your life.
At some point, you will have to sit down and have a tough, open discussion in a business context.
For parents, the challenge is deciding when to leave the company that they consider their legacy. As for children, adult or otherwise, it can be worrying to have to take over a thriving family business.
Succession planning takes more than a few months
According to a study conducted by BDC, five out of six business owners believe that the transition process can be completed in two years or less. Yet according to experts, a transition can take up to five years to complete. In the case of a family business, it can take as many as ten, depending on the company’s size and complexity.
Creating a succession plan is a proven way to help minimize turbulence while transitioning the business from one generation to another.
Your children might be in their 20s and you don’t see them taking over until they are 30, but that’s not a reason to put off succession planning in the coming years.
Having a plan in place will ensure the details of the sale have been discussed with your bank. It will also give you time to do estate and tax planning. You will also need to ensure that the new family CEO is ready to take over.
Five tips to help you plan the succession of your family business
In Canada, baby boomers make up the majority of business owners. However, many still haven't begun succession planning, either because they don't see themselves retiring, or because they don't believe their health will deteriorate.
These five tips can help you begin the planning process.
1. Start the conversation
Make sure your son or daughter really wants to take over from you. You're asking them to dedicate the rest of their careers and lives to this company. Sometimes an adult child doesn't really want to run the family business, but does anyway. Parents must then assume leadership roles.
2. Use professional services
When transitioning a family business underlying conflicts and intrusions on your personal life can arise. Since this is a rather serious conversation, you might have to manage all expectations through professional mediation.
To help you "let go", family counselling services may also be required. The process is quite emotional. You are bequeathing your company after probably devoting decades to it. It can take a long time to come to a decision that you're perfectly comfortable with.
3. Notify your human resources department
It's important that your human resources department is ready to call on members of your management team. The human resources department will have to work with the new manager. Members of the company's senior management may retire at the same time as you, leaving vacant positions to fill.
Your human resources team can also help your successors to take over the reins of the company. Do they have to take courses? Do they need mentoring or job shadowing to become more familiar with the company? Upgrading the person replacing you can add another year to the process.
4. Discuss your successor's vision
How will your children ensure the company's growth after you're gone? What are their projects? Their vision? Their vision may not be the same as yours. You might not be comfortable with this new direction. Make sure you talk about it. If you transfer your business, you'll have to accept that your children's vision may be different from yours.
5. Don’t offer discounts
Your selling price should reflect the fair market value of your business, even if you're selling it to your children. You shouldn't offer discounts because you will generally need the funds for your retirement. You could, however, structure payments over several years instead of a lump sum.
6. Respect the person replacing you
You are no longer the head of the company. Ideally, if you've done your succession planning right, you should leave your job fully. If you continue to participate in company activities, including chairing the board of directors, you risk interfering and could prevent the company from growing under new management. The person replacing you may redefine his or her role as head of senior management, and you'll have to accept this decision.
Prepare your successor to the best of your ability and then have faith and confidence in their decisions.
Next step
Find out more tips for preparing your exit strategy and selling your business by downloading our free guide Selling Your Business.