Last month’s column was on the massive wave of family business transitions expected to take place, and now, we’ll delve into the unique challenges of family business succession planning.
A family business succession plan has all the challenges of a business transfer to a third party, but includes the dynamics of family relationships.
Some advisors try to use the same templates for family business transitions as they would for a standard non-family transaction.
This approach is not effective and is partly why only 30 per cent of family businesses successfully transition to the next generation and less than 12 per cent make it to the third generation.
The key is in understanding and respecting the primary driver: the family dynamic.
Family members all fall into one or more of three circles of influence – the family circle, the ownership circle, or the business circle. The values and relationships in the family circle are the most critical.
The founders’ assumptions about whether or not children want in or out of the business are often wrong.
And where there is a common intent that the children will succeed in the business, a host of new issues arise such as training and education.
One must also consider how to provide for children who are not going to have a piece of the family business and for those who remain as part owners of the business, but inactive.
Establishing a dialogue and value system early is key and can be done years before transition planning.
Where the business is valuable, the founders can start planning for alternative benefits to be provided to children who are not going to succeed in the business.
Part of long-term planning should allow for a potential change in circumstances and intentions and provide for occasional check-ins to ensure the plan is still relevant for all of the stakeholders. Honest discussion must take place respectfully.
Sometimes the founder needs assurance that their values and relevance to the business operations are intact and part of the succession plan. By creating an advisory position for the founder ensures the institutional memory and mentorship are both accessible.
Family business succession planning often involves trained facilitators and, occasionally, family counsellors.
Do seek out advisors with the requisite expertise as success requires unique skills and perspectives. A great start is UBC’s Sauder School of Business “Road Map” (www.UBCroadmap.com) program which helps family businesses embark on a long-term vision for the business and the family.
John Becker has run his own law firm in Pitt Meadows for more than 30 years, focusing his practice on corporate commercial real estate and business succession planning. Send questions to: firstname.lastname@example.org