As the first wave of Canadian baby boomers retire over the next few years, succession planning will be vital for the long-term survival of many businesses. Canada is about to see a huge transfer of wealth from this generation to the next, yet many businesses struggle to ensure a smooth transition of business management and ownership. For family-owned companies, the ramifications may be even more sweeping. The personal issues they face, compounding other day-to-day business concerns, range from planning for income taxes to maintaining interpersonal relationships with family members.

A good succession plan will manage a range of issues, such as people and talent, family dynamics, corporate structure, estate planning, insurance and share transfer, to name just a few. Who Will Take Over the Business? is for any business owner who wants to retire, sell, or transfer ownership of their business. It is designed to guide business owners through a comprehensive and strategic approach to the business succession process to ensure that the transition is carried out as smoothly as possible. Who Will Take Over the Business? is a must-have resource for every Canadian business owner.

Today, the term is used to describe one of a number of different off-shoots of that concept. It is relevant to an increasing number of individuals who are shifting at least some of their focus from creating wealth to preserving it either due to the sale of abusiness or the realization that it is time to plan better for the future.

Simply put, a family office is the structure used to manage the business of a family. It need not be an actual office nor need it consist of full-time help. Think of it as a concept, as a kind of virtual office that organizes you for an intended purpose such as:

• Structuring your affairs for retirement or death;
• Helping a spouse or children to be more financially responsible with whatever assets you will be leaving them with;
• Diversifying your wealth, for example, where it is currently concentrated in an operating business or other asset categories;
• Minimizing taxes paid during your lifetime and on death;
• Giving to charities in a purposeful, organized and tax-efficient manner.

This virtual office should be “established” by a trusted advisor. As is the case with family businesses, often the stumbling block to creating the necessary structure is the reluctance to involve family members in the process. The result invariably is bits and pieces of structure that the wider family often knows little about, and understands evenless.

Studies show that the most important single issue that undermines successful transfers of wealth is the breakdown of trust and communications within the family unit. This leads to a failure in preparing heirs for their responsibilities. These two elements combine to cause 85% of the failures of wealth transition plans.

A mere 3% of wealth transition plan failures are due to professional errors in accounting, legal, or financial advisory planning. These professionals are generally very good at what they are trained to accomplish. But many families paying for their advice develop a false sense of preparedness. While tax, legal and financial planning is essential, it is not the complete answer to achieving success in estate transitions. Make sure that you have the well-rounded advice that you and your family require.

Ron Prehogan is a Partner at BrazeauSeller.LLP and President of Equitas Consultants Inc., a consulting business that provides business and wealth transition planning and implementation services for businesses and families using a unique combination of facilitation and transactions expertise.  Ron can be reached at rprehogan@equitasconsultants.com or (613) 569-7001.  For more information about Equitas, visit www.equitasconsultants.com.

The key buzzwords that we learned were how “special” that generation has been made to feel by their “helicopter parents” (parents who hover over their children solving all their problems for them).  This special feeling is then reinforced in school where there is apparently no longer such a thing as failing a grade without the parents’ permission. 

So far so good, I suppose, for the blessed child until he or she then enters the workforce and is now hearing anything but “you are special” from his or her boss!  I now get it why this generation bounces around from job to job – they’re busy looking for an employer, any employer, who will tell them how special they are.    

The lessons we learned for the employer who relies on having millennials in its workforce go like this – understand what makes them tick and then “partner” with them in a way that works for them and for you (i.e. try to find out what career path they are looking for and see how you might satisfy that in your business).  Coddle them in a way that works for you.  Provide them with opportunities for advancement earlier than was the case for your generation, if possible.  More than anything else, give them a reason to want to work for you, make it meaningful for them. 

For the business owner, there are some key related questions that should be answered:

• What is so     special about your business?  What     would make someone want to work for you and stay working for you?  What attracted them to your business in     the first place?  What attracts them     to your business today? 

• If you have     senior management that is “not getting any younger”, what are you doing     about that?   Are you unwittingly     posing a barrier to entry for talented young people lower down the food     chain?

• Are you one of     those “helicopter parents”?  If so,    does that somehow translate into your workforce and what are you doing     about that? 

A key starting point could be for you to write down 3 things in bullet point form that set your business apart from the rest in a meaningful way.  Then bounce your list off others for their opinion – or ask them to create their own list and compare.  Whatever you do, make sure that these are not “yes people” and encourage them to be as honest as possible with you.  If you don’t feel comfortable doing that on your own, get someone to help.

Whether you call it a vision statement, a mission statement, a values statement, a this-is-who-we-are statement or whatever, the important thing is to be as brutally honest as you can be.   The Four Seasons hotel chain became a world leader according to its founder, Isadore Sharp, because early on he decided to apply in every aspect of his business a simple lesson that he learned from his mother – “do unto others as you would have them do unto you”.  His autobiography describes what he did and includes the company mission statement.

Another example is Robert Half International, the world’s first and largest specialized staffing firm.  As far back as 1963, before the Civil Rights Act in the United States passed, Mr. Robert Half lobbied against racial discrimination in the staffing industry, urging fellow staffing firms to not only follow the letter of the law but to abide by an even greater jurisdiction: “the laws of common decency”.  Everything that the company does to this day – long after the passing of its founder – is guided by its “ethics first” philosophy.

If brutal honesty leads to a re-assessment of what you are doing and how you are doing it, all the better.  One way or the other, people out there whether they are employees, prospective employees, customers or prospective customers are looking for the authentic you.  Not the trumped-up you, not the marketed you, but the real you. 

Have fun and good luck!

Ron Prehogan is President of Equitas Consultants Inc., a consulting business that provides business and wealth transition planning and implementation services for businesses and families using a unique combination of facilitation and transactions expertise.  Ron can be reached at rprehogan@equitasconsultants.com or (613) 569-7001.  For more information about Equitas, visit www.equitasconsultants.com.

As published by the Ottawa Business Journal  on March 21, 2011.

In over 30 years advising families in business, I have seen the good, the bad and the ugly in terms of what the business can do to the family and what the family can do to the business.  

In terms of what the business can do to a family, the upside is that it can make a strong family even stronger by working together to do good things for the betterment of the family, the people working in the business and the greater community.  Unfortunately, however, for every situation like that, there are multiple cases of families being destroyed by the business due to factors like greed, ego or unresolved emotional issues.

As far as what the family can do to a business, the upside is enormously powerful – businesses run by people with a common purpose, common values and a common bond who understand the risk/reward equation and whose capital is patient.  The downside, however, is equally powerful – i.e. businesses getting dragged down by family issues that can become so overwhelming that even the most successful business cannot withstand.

So what does this all mean to a family business owner who dreams of one day passing the business on to one or more of the children and wondering how to do it successfully?  My answer is to do as much of the following as you possibly can:

1.    Show the family the positives in your work, not just the negatives.   

2.    Guide, mentor and empower the children towards their dreams.     

3.    Let business be business and family be family.

4.    Re-visit your personal financial and lifestyle plan before your succession plan. 

5.    Rely on good trusted advice.         

Key #1 – Show the family the positives in your work, not just the negatives

If you find little joy or meaning in the work that you do, your dream of family succession may be in peril before you even get out of the starting blocks. 

However, if you derive satisfaction out of things like providing employment for others or being engaged in community life through the business, then you should ask yourself the next question – does my family know this about me or do they only see the hardships that I endure and the sacrifices that I make in business?        

If you want to attract others to what you are doing, then make it attractive to them.  It might also be an important reminder to you about what you are doing and why you are doing it.  The positive effects from that could be huge and long-lasting for you, your family and your business.   

Key #2 – Guide, mentor and empower the children towards their dreams

Parenting 101 tells you to “let the chickies fly from the nest” at some point, and that the longer you let that point pass the more difficulty your children will have becoming mature and properly functioning adults.  (There are exceptions to this rule for developmentally disabled children and other situations which are beyond the scope of this paper.)

This can often be one of the most difficult things for us to do as parents as there will always be an element of risk in terms of when and how to apply the principle.  Our instinct is to protect our children and so we often err on the side of caution.  There is nothing wrong with that, provided that we don’t let the pendulum swing too far to the side of caution and have it remain there without considering the damage that may do.

Bringing children into the business in order to provide them with a livelihood is an important example of this principle at work.  On the one hand, a parent might think “if I have it why shouldn’t I share it with my children and spare them the risk and the hardship that I had to endure to get where I got?”  This would be a normal and lovingly-based thought process.  However, danger may be lurking below the surface.

With the very best of intentions, you could be sending a message to your children that they are not competent to make it on their own.  Stop for a moment and think of how destructive that could be to their development.  Think also about what it takes to be successful in business.  How well would you have done in business if risk was taken away from you?  How well would you have done in life?

Warren Buffett decided a long time ago to leave a tiny percentage of his estate to his children for a very basic reason as I understand it.  His attitude was that he earned his money, let the children earn theirs.  From the sound of things, he understands that the most important gift he can give his children is the benefit of his knowledge and experience so that they have the tools in life to succeed.  Obviously, his wisdom extends far beyond the investment world.   

Let your children find their way in this world, allow their dreams to emerge and give them the emotional support they need every step of the way.  If their passion is to get involved in your business, great, now you have something to talk about in terms of the circumstances in which you may allow them in.  If not, that’s great too, mentor them lovingly to help them find their chosen path.  If you remember that your primary obligation to your child is to be a good parent, you can’t go wrong. 

Key #3 - Let business be business and family be family

Keys #1 and 2 are in no way technical or limited to the family business.  They can be applied in many other situations and walks of life.  Key #3, however, is very much focused on the family business and the processes that should be in place to help ensure a successful transition of the business to the next generation or anyone else for that matter.

As business owners plan for the day they are no longer in charge, they need to think about who their successors will be - both as operators and as owners.  When is the time for me to exit from the business?   Who will take over from me?  When should I dispose of my shares and what is the best way of doing that?  If I want my children to one day acquire ownership, should it be by way of gift or sale?  And so on. 

Operational successors can be family members or from outside the family.  My advice on that is to go for the best person you can find for the job at the price you are prepared to pay.  If that person is a non-family member, you can still pass ownership of the business to family members. Whether the next CEO is a family or non-family member, be sure to pay what a position of that nature warrants on the open market.  If you’re not sure, find out for yourself or from a hired compensation consultant.  

 This is but one of many examples of the golden rule of family businesses – that is, to run the business like a business and the family like a family.  Once you allow family considerations to creep into business decisions, you are setting up the business and the family for failure at some point down the road. 

Examples of processes to be considered include establishing a family employment and compensation policy; setting up a functioning board of business-minded people focused on the best interests of the business (as opposed to the best interests of a shareholder); and setting up a family council consisting of adult family members with a stake in the business.  All of these processes are designed to ensure that the business is run like a business while family and ownership matters are dealt with in a separate forum. 

Key #4 – Re-visit your personal financial and lifestyle plan before your succession plan

In this line of work, there are very few absolutes.  In my experience, there is at least one and that is do not undertake a succession planning process before you and your spouse sit down and figure out where you are at and where you want to be from a financial and lifestyle point of view.

There are at least two good reasons for this rule: (1) the next generation needs to know to what extent, if any, the previous generation will be relying on the business for their livelihood following a transition to the next generation; (2) retirement planning discussions between spouses can be a vitally important opportunity to check assumptions and re-set expectations about the next chapter in their lives.    

Good communication is usually the ultimate key to a successful succession plan.  If communication between spouses is not as open as it needs to be for these purposes, it will have a negative impact on succession planning discussions with the next generation.  One or two facilitated discussions between spouses can go a long way towards succession success. 

Key #5 – Rely on good trusted advice

 Statistics and anecdotal evidence indicate that most family business owners who say they plan to exit their business in the next five years have very little in the way of a detailed plan.  Those who say they have a plan often confuse a succession plan with an estate plan.

A succession plan is a series of discussions with successors and key business stakeholders which culminate in a plan to most effectively transition the business.  An estate plan, on the other hand, is a process which culminates in legal documents to record the wishes of the owner regarding the transmission of assets on death.  A succession plan is a business-driven process.  An estate plan is a legal and tax-driven process.    

In their book How to Choose & Use Advisors: Getting the Best Professional Family Business Advice, Craig E. Aronoff, Ph.D. and John L. Ward, Ph.D say that a family business owner should examine relationships with an advisor who:

• Fails to avoid conflict of interest
• Fails to respect client confidentiality
• Promotes dependency in a client
• Works primarily in isolation
• Is reluctant to deal with successors
• Sells solutions rather than listening to problems
• Ventures beyond his or her knowledge
• Makes too many decisions for the client
• Fails to foster good communication
• Lacks empathy

On the positive side, they listed the following benchmarks of excellence in family business advisors:

• Maintains up-to-date technical knowledge and shows strong interest in and commitment to the field
• Communicates openly in clear, simple language, helping educate family members when appropriate
• Seeks to know the family and business in depth
• Understands how families work and how the family and the business relate to each other
• Gives advice and counsel that suit both the family and the business
• Initiates periodic meetings with the client for update and review
• Is resourceful on clients’ behalf, spotting opportunities and sharing information and contacts
• Shows empathy, patience and trustworthiness
• Is willing to work with successor generations
• Raises questions about the future
• Promotes collaboration among advisors
• Gives honest advice, even when it may jeopardize the client relationship

 From time to time, it is important to pause and ask yourself whether you are getting the advice you need.  For family business owners, there may be much at stake for the business and/or the family particularly when it is time to do succession or estate planning. 

Ron Prehogan is President of Equitas Consultants Inc., a consulting business that provides business and wealth transition planning and implementation services for businesses and families using a unique combination of facilitation and transactions expertise.  Ron can be reached at rprehogan@equitasconsultants.com or (613) 569-7001.  For more information about Equitas, visit www.equitasconsultants.com.

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The Equitas Transition Planning Process™ is best explained by the following Q&A: 

Q: What do you mean by “transition planning”?

A: Transition planning is planning and providing for disposition of the business and/or liquid assets in a manner that works best for all concerned.  It includes the legal, financial, personal and family aspects of the transition.    

Q: When would be a good time to start thinking about a transition plan? 

A: The sooner you start thinking about it the better.  If you have children, you should let them see when they are young the joy and meaning in what you do.  Your teenagers can work summers in the business and should be encouraged to pursue their dreams.  If and when they are ready to work in the business, they must learn that it is a privilege, not an entitlement.

Q:  When would be a good time to start working on a transition plan? 

A:  It’s never too early, but usually about 5 years before you are ready to execute on the plan. 

Q: What does a transition plan typically look like?

A: There are four components to The Equitas Transition Planning Process™: (1) Personal Financial Planning; (2) Personal Life Planning; (3) Business Succession Planning; and (4) Wealth Transition Planning.  We generally recommend that the components of the plan be done in that order. 

Q: Why do you recommend that the components of the plan be done in that order?

A: The Personal Financial and Personal Life Plans attempt to capture yours and your spouse’s essential wants and needs for the rest of your lives.  We recommend participating in at least one or two conversations about this before starting to discuss a Business Succession Plan which typically involves children and/or senior employees of the business.  In other words, let husband and wife get their “house in order” before involving others.  The Wealth Transition Plan should follow to ensure that it reflects the prior discussions.  We have seen too many cases where people go straight to the Estate Plan which may be good at minimizing taxes but bad at capturing the essence of what needs to be done.  If this is the case, the Estate Plan may be modified after completing the first three steps to reflect those discussions.

Q: Who should we use to help us with our transition planning?

A: Usually it starts with your most trusted advisor(s) and goes from there. 

Q: Would my lawyer and accountant be able to handle all of this for me?

A: Yes, as long as they bring in others as and when required.  Lawyers and accountants are trained to provide the technical advice of the Personal Financial and Wealth Transition Plans.  Other professionals like Equitas who are expert in their fields should help with the Personal Life and Business Succession Plans.   

Q: How does Equitas help with the Personal Life Plan? 

A: Sometimes, spouses need to re-visit the “deal” they had at one time regarding retirement and what they would like to do in their retirement.  Spouses can also have anxieties about knowing where things are and what to do and who to call in the event of an untimely demise.  Equitas helps facilitate conversations around issues such as these. 

Q: How does Equitas help with the Business Succession Plan?

A: Equitas helps facilitate discussions around the keep-or-sell decision and once a decision is made helps in its execution.  If the decision is to keep the business in the family, Equitas helps with governance matters and with term sheets for shareholders agreements dealing with exit strategies.  Equitas also helps co-ordinate other professional advisors if and as required.

Q: What if I have other questions?

A: Give us a call at 613-569-7001 or email us at rprehogan@equitasconsultants.com.