Family Business Succession Planning
The Family Enterprise Xchange Foundation (FEX-F’s) predecessor revealed 70% of family businesses do not make it in business to the second generation and an astounding 90% fail to make it to the third.
That said, clearly, succession failures far exceed successes. Particularly troubling when we realize the largest asset for most families is their business
So what to do? Well first off as has been prominently referenced in the daily press briefings, the majority of businesses in Canada are “small businesses” and of those, by far the majority are family-owned.
In fact, the FEX-F reports family enterprises generated almost half of Canada’s private sector GDP and almost 7,000,000 jobs in 2017. Family-run businesses outperform their counterparts in longevity. Over 70% of family enterprises in operation in 2007 were still running in 2013, compared with 65.2% of other firms.
Family business succession planning is not restricted to the preparation of Wills or Powers of Attorney. On the contrary, while those are part of the process to successfully transfer a family business, a much more significant issue is the identification of the appropriate Senior Management to perpetuate the family business.
Two or three centuries ago, when life expectancies were two-thirds or less of what they are today, “Johnson & Son” meant a father and son business, but the father expired in what is today middle age and the son assumed the mantle oftentimes in his early twenties. With current life expectancies, the patriarch may remain vibrant and fully participatory well into his 80’s or even 90’s and the “Son” may well have toiled in the family business into his 50’s or 60’s. It is only natural to expect “Son” will seek independence and even strike out on his well before the father is prepared to step aside or change roles.
The planning of succession is probably the last and least desirable part of the operation of a family business. It presents tremendous potential family conflicts and sometimes divergent views on the future of the business and its requirements.
Skillful management of these family dynamics, a critical review of the business prospects and an even more sensitive assessment of skillsets and commitment often require the resources of an independent third party to assist the family.
In our office, we have significant experience with family-owned businesses migrating from one generation to the next. The use of independent resources to assist the legal process may be called upon, but throughout the process, the primary objective is to maximize the capital invested in the family-owned business, avoid or defer unnecessary taxes and to satisfy the aspirations of the family as a whole.
We look forward to assisting in this sometimes incredibly difficult recognition of the reality associated with the necessary consideration of a family business succession.
But here‘s the rub.
Clearly, your lifetime devotion to your family and its financial wellbeing should not be frustrated by a lapse in your planning or, worse still, by unnecessary governmental intervention or liability for avoidable taxes. Your Will is a key instrument fulfilling your life’s efforts. See Peter in order to move your planning forward.
Read more about why you might need Two Wills
Want more information?
Are you interested in a consultation with Peter R. Welsh?
Contact me at Peter@SmartWills.ca
By telephone 416-526-3121
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This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions.