Transitioning Your Family Business or: Who Gets the Jets Tickets?

Less than 25% of family businesses survive to the third generation. That’s a disturbing statistic which highlights the difficulties with transitioning ownership to children and grandkids. As the saying goes, “failure is an orphan and success has many fathers”. Successful transition to the next generation requires a thoughtful and well managed process beginning with an assessment of objective and subjective criteria, focused on a critical examination of the entire family’s needs. Having a meaningful dialogue among parents and children about the future while working together on a daily basis, is something most families are ill-equipped to do.

This leads to the question: How do I engage in transitioning my business to the next generation?

Here are a few ideas that we’ve adopted with success:

  • Parents have biases, particularly about their children. Consider using an independent party to assess the next generation’s management bench strength. Characteristics you’re oblivious to, may be self-evident to others.
  • “Don’t fall in love with the bricks and mortar.” Often the entire family will be better served by selling the business. Engage in a meaningful dialogue without a preconceived notion of the ideal outcome. Get help to create an environment for frank discussion.
  • Consider what transition looks like. If a substantial portion of the owner’s net worth or cash flow is tied up in the business, it’s critical that the plan addresses capital extraction, future cash needs and risk management.
  • Make sure you tie-up loose ends. Often sole proprietors ignore the need for the next generation to have rules in place governing their co-ownership. Do them a favour by insisting that a shareholders’ agreement be put in place before ownership or control shifts.
  • And lastly, if you’re an owner who’s stepping away, be aware of what’s being left behind. The Jets season tickets could be a company asset that stays with the C-suite!

When contemplating a family business succession plan, utilizing a well-defined process will greatly enhance your chances for success.

Acumen assists family businesses through succession planning and implementation. We work with existing advisors to identify and address founders’ requirements, while preserving the business’ continuing future success and meeting the next generation’s expectations.