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Family gatherings can be an excellent opportunity to talk about the future and your goals as a family. It’s not only a time to reconnect with loved ones and enjoy some delicious food, but opens the door to the perfect opportunity to also talk about…succession planning.
As many families learn first-hand, a succession plan isn’t typically drafted in one night. It can take family’s years to complete the details of how to pass down the family business. But with some honest discussions and the support of succession advisors, they are well equipped to find a succession strategy that works for everyone.
Here are some tips:
Not every child wants to take over the family business and that is often the case with many of the families we work with. Although all the children may have helped in various capacities over the years to support their parents, as they got older, one or more of the children, may have took on more business responsibilities.
So as one may have aspired to one day take over the family business, others may not — which is good to know upfront and an integral first step in developing a fair succession plan.
Your children may not always agree on business decisions. As parents inching toward retirement, with more than one child wanting to be involved, you may wonder how they would run the business together or be concerned about how they would pay for the business or how any children not wanting to be involved with day-to-day business would fit into the business’s future.
The there are other factors to consider as well, such as tax issues, division of business property, how would the next president be decided, should employees be involved as owners and the funding of your retirement.
With everything laid out on the table and the help of their MNP advisor, families are in a better position to tackle each challenge one by one. Most business owners understand the industry issues most pertinent to their business but they aren’t succession experts. A business advisor specializing in succession can help reorganize the structure of ownership to reduce your tax burden and recommend various options. For example, recommending a buy-out plan and retaining their parents as advisors and directors, thereby creating an income stream for parents during their retirement.
The important thing is developing a plan for the business which would align both with the parents’ payout and the children’s vision for managing and growing the business. This often involves putting a formal structure in place to govern how they would work together. And, to prevent miscommunication, it should also include a dispute-resolution process.
It’s important to not forget about the children not involved in the business. There are a number of different scenarios but for example, perhaps the child not involved with the business was given an opportunity to hold non-preferential shares in the business, or they are given a larger inheritance of the parents’ non-business assets, like property, RRSPs and savings. It’s important to have this discussion and consider all children in the equation.
There is no one-size-fits-all approach, it’s unlikely you’ll draft an air-tight succession plan on the first pass. That said, holiday gatherings can determine which family members are interested in which aspects of the business and explore options for those who aren’t. The key is to approach the conversation in a civil and professional way. So don’t put off your succession planning. Take your next family gathering as an opportunity to start the conversation.
If you’d like to learn more strategies for preserving your family fortune, contact an MNP Business Advisor today.
Related Topics:Small Business; Entrepreneurs; Estate Planning; Family
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