Running a business is complicated in itself, but when multigenerational family dynamics are layered on top of that, sometimes the combined weight can sink the family’s primary source of wealth.
The family-run business is the backbone of our economy (there are well over 100,000 privately-owned Canadian businesses with revenue in excess of $3 million), so many of us have a stake in the transitioning of this wealth to the next generation. |
Succession planning is simply the passing of control of the business in a way that ensures effective leadership and continued growth. A surprising number of families don’t plan – they procrastinate because they are reluctant to confront the issue.
Entrepreneurs, by nature, are self-sufficient and independent, making it difficult for them to loosen the reins. According to a Canadian government study from March, 2003, two-thirds of owners don’t have succession plans, 69.5 percent of the owners are older than 50, and 49 percent plan to retire in under ten years.
The risks of doing nothing are high: when sudden death or disability strike, family members and business managers are ill-prepared, placing the business in a crisis mode where its value cannot be maximized. |
Succession planning is something every business owner must face at some point in the life cycle of their business. It’s a process that can be complex and one that all too many business owners tend to put off until it’s imminent.
The Succession Source web site contains a great number of resources to provide business owners with the necessary information to help them to work through the issues they face along the road to a successful succession plan. And, our specialists can help you to make the process straightforward and successful.
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“When it comes to succession planning, families often assume that the next generation will carry on the family business, without consulting the kids and without looking at their individual strengths and weaknesses,” says Sean Foran, Vice President, Succession Planning, BMO Harris Private Banking. “Instead of looking first at what the business needs, they plan based on emotion.”
Getting started on the succession plan is the first hurdle. BMO Harris Private Banking offers a tool kit and a framework that will encourage family conversations about the business.
The planning process can be broken down into manageable building blocks. Start by asking yourself do you and your family really want to keep the business in the family?
Next, the family must isolate the three key stakeholders - shareholders, the family and the business itself. Each stakeholder is given a voice. Creating a business continuity plan aligns the needs of the business and the family and involves the input of senior company managers. After all the factors are considered, the owners may discover that selling the company and dividing the assets is the best way to preserve the family’s wealth.
“My advice is ‘don’t try this at home’,” Sean says. “A number of smart, prominent families have made headlines because they weren’t able to effect a successful transition.”
Instead, he encourages families to have confidence in their ability to get started in planning the transfer of the business. “You may need help, but once you have put this in place and let go, you will derive enormous satisfaction and pride from seeing your vision of the future become a reality.”
If succession planning is relevant to your future, contact a BMO Harris Private Banking professional, who can help you start the process.
This article is prepared as a general source of information and should not be relied upon as personal investment, legal, or tax planning advice. We have used our best efforts to ensure that the material contained in the article is accurate at the time of publication. Banking Services are offered through BMO Bank of Montreal. Investment Management Services are offered through BMO Harris Investment Management Inc., an indirect subsidiary of Bank of Montreal. Estate, trust, custodial and tax services are offered through BMO Trust Company, a wholly owned subsidiary of Bank of Montreal.
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