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Planning for Succession? Don't Make This Mistake.


Business owners intending to transition their companies to family or staff members may find themselves in an unenviable position. Business is multi-dimensional and so is an effective succession plan. To serve you best, your succession plan needs to not only address the myriad of issues involved in exiting your business, but lay the foundation to maximize the value of your business in the short- and long-term. It needs to be flexible to deal with uncertainties while providing you with a clear path for the future.

For instance, the succession process requires the owner to consider two different, but inextricably linked, facets of the business: ownership and management. Often business owners try to deal with these areas simultaneously or without awareness of the distinctly different focuses – and while this approach may seem like the fastest and easiest way to make decisions – it can carry significant risk.

How your business is structured significantly impacts how it operates and affects all parties involved with the transition of your exit strategy. That’s why we work closely with you and help you separate management and ownership issues. Our strategic process enables the right people to make the right decisions and ensures your governance structure today and in the future, facilitates your transition out of the business. Here’s how:

  • Making changes to management and ownership can be complex and will involve managing the expectations and personality differences of multiple internal and external stakeholders.
  • By dealing with these two areas separately, you can reduce the pressure of decision-making for all parties and address any underlying issues of each role with more clarity and objectivity.
  • Decisions about future ownership and management may influence each other, but should not necessarily determine one another. This is especially important when you take into consideration that a change to one area may not occur at the same time as the other.

By developing a detailed timeline which allows you to consider ownership and management changes separately, you create the necessary room to make strategic but   potentially difficult decisions which position you and your business for success and prosperity.
The following are some of the key considerations when looking at changes in ownership in this context:

  • Is it possible for the existing owners, on a personal, emotional and relationship level, to differentiate between potential ownership and management changes arising from succession?
  • Should ownership and management be transitioned along different timelines?
  • Is it feasible or realistic to transfer one and not the other?
  • To what extent and for how long does the owner want to maintain control and responsibility over important decisions and be exposed to business risks?
  • What is the most appropriate way to decide who will manage the business during the succession process and thereafter? Is any outside assistance required, either on a temporary or permanent basis?
  • Will the new CEO or general manager be chosen on the basis of ability, family membership or a combination of the two?
  • Will a change of ownership cause any problems for long-term employees or senior management?
  • Are the owners of the business willing to transition ownership, management responsibility or a combination of the two? In other words, is it possible for the new majority owner to have a lesser management or leadership role in the future than a minority owner? If this is the case, what are some of the potential consequences?

When addressing changes in management responsibility, the following questions should be asked:

  • Considering the future needs of the corporation and the influences from society, the economy, your industry and globalization, what skills are required to ensure a sustainable and profitable corporation? Are you willing to start with a blank slate approach rather than make incremental changes to a status quo which is not really suited for where you want to go?
  • Do the family members in the business possess the skills and experience necessary to manage the business going forward? Are you as the owner willing to accept that you may be biased in making this assessment?
  • Will family members need help managing the business now or in the future, even if they end up owning the majority of shares? If so, how will this support be provided and by whom?
  • What limits should be put around the management roles of family members in order to protect the ownership of owners that are not involved in the business on a day-to-day basis?
  • What milestones could be measured to ensure the right people have the right skills at the right time? Will this require internal or external learning and how will this professional development be paid for?
  • In what way may transferring ownership to people who are not yet ready jeopardize the professional development of those taking on increased management responsibility?
  • What kind of management is required for the future? Will the company benefit most from someone that can grow or maintain it? What training is required for new management to develop the skills of the current owners and the commensurate experience?

The above questions provide a road map for securing the future of a family-owned business. Addressing the areas of ownership and management separately allows you to make strategic decisions that secure your business so you may exit on your own terms. Achieving success in business is hard work. After all the sacrifice, risk and commitment, you deserve to design your future your way.

For more information, contact Eben Louw, CPA, CA, at 604.870.7413 or [email protected]