58% of business owners do not have a succession plan. Can you guess what the single biggest reason is for setting aside that task? 78% of respondents say that they’ve neglected developing a formal succession plan because they enjoy their work too much to think about retiring!
It’s a heartening statistic, and a testament to the power of entrepreneurship to create a lifestyle according to one’s own unique goals. The added bonus is that for many small business owners, the lifestyle they’ve created can also be passed down through the generations, producing wealth for the family for years to come. But in order to get there, time needs to be set aside for succession planning.
Starting the discussion
Unlike many other business-related topics like, say, inventory, logistics, or procurement, succession planning carries emotional weight. We’re not only discussing what will happen when someone wants to retire, but also what could happen if someone gets sick or passes away unexpectedly. In the case of a family business, this topic is especially tender. Add to this the interpersonal challenges that inevitably arise within families, and the succession planning discussion can feel like a bit of a landmine.
Here’s why you need an advisor
At Zeifmans, we’ve spent decades working with family-run businesses, and assisting those families in transitioning their companies from one generation to the next. We have a unique understanding of the multifaceted nature of these transitions, and our team is adept at predicting upcoming challenges and mitigating their associated risks. Over the years, we’ve developed subject matter expertise that has proved invaluable to our clients as they navigate the business landscape through multiple generations. From our depth of experience, we’ve seen 4 big reasons why families benefit from working with a succession planning advisor:
1) Emotional stability
While many entrepreneurs will tell you that they “use their gut” to guide difficult decisions, the fact is that when emotions run high, our judgement is impaired. When a business owner feels a strong connection to the company, it can be difficult to think clearly about retiring. When two siblings have conflicting views (compounded by years of history), it is challenging to reach a compromise that serves everyone’s needs. An advisor is an unbiased party who can ask the difficult questions without the emotional charge associated to someone within the family context. This “outside” perspective is helpful in introducing new solutions and moving the discussion forward in a productive manner.
2) Taxation foresight
Taxation planning can play a large role in the long-term preservation of wealth. Establishing a system early that speaks to the long-term goals and objectives of the family sets everyone up for future success. For example, if a business owner has 4 children, but only one wants to inherit the business, will the other 3 children still get equity? Asking the hard questions early can ease the transition down the road when the time comes for the business to officially change hands.
3) Sale considerations
In the event that none of the younger generations wish to inherit the business, an advisor can analyze the profitability of a sale scenario. Having an unbiased party conduct the analysis ensures that an agnostic approach is taken, and an effective decision can be reached without the influence of competing familial opinions.
4) Clearly communicating roles
Businesses change and adapt over the years. At Zeifmans, we often see cases where a family business may have started out as a small retail operation with the grandparents, and since gone on to expand into additional offerings such as real estate. In diverse situations such as these, it is common for family members to show an interest in one part of the business, but not in others. An advisor can lead the discussion around roles and responsibilities, and clearly communicate how and where individuals will be involved. From this discussion, a shareholder’s agreement can be drawn up to formalize these roles.
Family business advice, from a family-run business
As a second-generation family business, at Zeifmans we have an intimate understanding of the challenges and benefits of working with the ones we love. Our team members ask the hard questions, and gain a thorough understanding of a founder’s wishes, which enables them to build detailed succession plans to make those wishes a reality in the years to come.
To speak with a member of our team about your family’s succession plan, contact us today at (416) 256-4000.
 Wilmington Trust, “The Power of Planning”, https://www.wilmingtontrust.com/repositories/wtc_sitecontent/PDF/The-Power-of-Planning.pdf