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Successfully transferring management from one generation to the next is a major challenge for many family-owned businesses. If the results of a 2005 study by California-based Scion Advisors are any indication, the North American wine industry may face a bigger challenge than most.
Among the findings, researchers noted that about 75 per cent of wineries pass on to future generations, far exceeding the 30 per cent figure for other family-run businesses. The study also identified that approximately 40 per cent of the 2,400 wineries in California, Oregon and Washington are expected to change hands by 2018; and nearly 70 per cent of California wineries have not started planning for that transition.
Although the Canadian wine industry is much smaller and younger than its US counterpart, one might assume that similar trends exist here at home. In BC, family-owned estate wineries are common and many will soon be faced with a transfer of ownership; either to the next generation of family owners or to new owners outside the family.
Many business owners equate a succession plan with tax and estate planning. They focus on strategies to minimize the tax on sale or death and agreements for the purchase and sale of shares.
Although these are key issues, they are only a part of a successful succession plan. Many owners neglect to plan for the transfer of key skills and knowledge required to operate and manage their winery. Yet, the successful transfer of this information is critical. The value of your winery to a potential purchaser is dramatically enhanced when the key systems and processes that make the business successful have been detailed and documented. You need to be able to clearly demonstrate to the buyer that the business is capable of running efficiently and profitably without you.
The same argument holds true when management of the winery business is transitioning to the next generation within the family. Deborah Steinhal, a partner with Scion Advisors says “maintaining continuity requires an ongoing dialog about how participants will work together as the business and family grow and change. Winery owners need to mentor their children. Succession plans might even include provisions such as paying for children's education or requiring they have master's degrees or outside job experience before taking positions with the family company.”
Why do so many founding winery owners find this process so difficult? To understand the answer, it helps to view the founders as the parents and their winery as the child. When the child was very young, the parents did everything. They worked very hard to support the child; helping them grow and prosper. As the child grew, they became more successful and independent; all under the watchful eyes of the parents.
Every parent eventually faces the challenge of “letting go” although their instinct has always been to stay involved, to instruct, guide and make all the decisions.
The goal of business succession is to enable the business to operate and prosper without the day-to-day involvement of the current leader or leaders. To be successful, the owners must let go of their day-to-day involvement in the minute details of operating the business. They must identify the next leaders, mentor them, provide detailed and well-documented systems and frameworks in which to operate and then step back. The founders continue to play a critical role of experienced advisors and “guardians of the vision”, ensuring the strategic direction and key decisions remain true to the values they themselves established.
Whether the goal is to transfer ownership and management to the next family generation or to maximize the value of your winery in an arm’s length sale, planning for the effective succession of the business itself is key consideration. Often, a qualified consultant who knows your business and the wine industry can be a valuable asset. Above all, business succession is a process, not an event and the time to begin is never too early.
Geoff McIntyre CA is an advisor with Meyers Norris Penny in Kelowna.
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