Family Matters: Succession Planning for a Family Owned Business

Family Matters: Succession Planning for a Family Owned Business

I was recently tuned into CBC while they were interviewing a business expert that studied the successes and the many failures of transferring a business from one generation to the next. It really stuck with me when this expert said that it is not uncommon to see one generation build a successful business and accumulate wealth, only to see the second-generation coast and the third-generation squander.

In fact, a recent report published by PricewaterhouseCoopers notes that 70% of business transfers fail between generations and only 5% survive to a fourth generation. A treacherous path that no entrepreneur envisions for their business or family.

It so happened that I was listening to this radio segment on the car ride home from the office just as I was about to embark on the daily after-work routine of daycare pick-ups, grocery shopping, dinner preparation, bedtime and other household chores. I was reminded of just how busy life is.

So, what does this all mean for business owners? Well for one, time comes at a premium, and once the right balance has been found between personal life and business life, most business owners focus their ‘business time’ allocation on nurturing, developing and growing their businesses. Often, not enough time and resources are allocated to business succession planning which, according to the expert, can lead to grave financial consequences.


Below are some of the considerations that business owners should be mindful of when planning for the succession of their businesses and strategizing for the financial wellbeing of their families:

  • YOU’VE WORKED HARD to build your business, now what would you like to see for your family and the future of your business? Would you like your family to cash out or continue in the business?
  • IF YOU WISH FOR YOUR FAMILY to continue in the business, are your family members willing and able to take on the reigns? Have they been given the necessary training and experience during your lifetime to take over when the time comes?
  • DO YOU HAVE SOME FAMILY MEMBERS that are interested in continuing in the business and others that are not? How do you ensure that all are treated fairly when your estate is divided up?
  • HAVE YOU ALREADY PASSED on certain shares of your business to family members? Typically, done as a part of an “estate freeze”, a process whereby your interests in your business are frozen at a given time so that the future growth of your business accrues and is effectively taxed in the hands of the next generation.
  • IF YES, AND FAMILY MEMBERS ARE INVOLVED in the business then do you have a current shareholders’ agreement in place that sets out rules on how key business decisions are made, how shareholders are to be compensated for their efforts and how any potential conflicts of interest such as shareholder borrowings are addressed?
  • IF YOU HAVE BUSINESS PARTNERS, what do they think about your succession plan? Do they have any interest in being in business with your family?
  • DOES YOUR BUSINESS involve key customers and/or relationships? If yes, have you taken the necessary steps to transfer these relationships from one generation to the next?
  • ESTATE PLANNING IS the process taken up during a person’s life of anticipating and arranging for the management and disposal of that person’s estate, while minimizing tax. What steps have you taken to ensure that your assets transfer in a tax efficient manner?
  • HAVE YOU TAKEN THE TIME to project the needs and sources of liquidity for your estate?

If you haven’t started to think about these questions, or don’t know where to start, talk to a professional advisor who can help steer you in the right direction.
After all, a proper succession plan is about ensuring that your family and your business can continue to move forward without disruption in a manner that is in accordance with your wishes and builds on your success and hard work.

By Farzin Remtulla 

This information is designed to educate and inform you of strategies and products currently available. As each individual’s circumstances differ, it is important to review the suitability of these concepts for your particular needs with a qualified advisor.

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