For many people, work is very separate from their personal life. Business decisions are based simply on how they impact the balance sheet and family decisions are made strictly from the heart. But in a number of family-owned and -operated florists shops this isn’t the case – brothers and sisters often take over the shop from mom and dad, and siblings, cousins and spouses make up much of the staff.
These businesses are not only a huge emotional investment; they’re also a significant financial asset. If you’re the owner of a small to medium-sized florist shop preparing to retire, you may just be asking yourself “how do I pass the torch to the next generation”?
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If you want to pass down the family business, you’ll need to have a good plan in place.
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Family businesses are a huge driver of the Canadian economy and estimated to represent 80 to 90 per cent of our nation’s companies. A 2002 report by the Business Families Centre at University of British Columbia reported that “over the next 15 years, fully 75 per cent of all family business leaders will retire. In practical terms, that constitutes the largest asset transfer in Canadian history. If that transfer goes awry in any way, there could be grave consequences – not only for the families themselves, but for our entire economy as well.” Grant Walsh, co-founder of the KPMG Centre for Family Enterprise, has helped many family businesses navigate these transitions in leadership. “Business owners often think they have to make the transition work themselves. In fact, it’s not their sole responsibility. The best step owners can take when it comes to handing the reins over to other family members is to let the younger generation be the ones to lead the process with advisor support,” advises Walsh.
Owners looking to retire need to acknowledge that their business is more than just a place to hang their hat to them. In many ways, entrepreneurs view their business as though it is another child. They’ve nurtured the business, worried about it, protected it – there’s a lot of emotion associated with the enterprise. The key says Walsh, is to have the younger generation come up with the plan for taking the reins over. “The transfer of power can be broken into two phases. The first phase is management succession. Once that is addressed, who gets what shares financially (ownership succession) can be finalized. Once a child is an adult and has indicated they have a desire to take over the business, the transition can begin as they take on increasingly responsible roles within the company.” It seems straightforward enough but how do you decide which child would be best suited to succeed you and how do you begin those discussions?
“Entrepreneurs can sometimes struggle to work effectively with other entrepreneurs,” points out Walsh. “Sometimes the child that’s really innovative and entrepreneurial would actually be happier going off to start their own separate business. They won’t wait around. The child that’s a good manager, organized, with strong interpersonal skills, typically makes the better candidate for taking over the business. You want them to grow the business not necessarily reinvent it.”
It’s also imperative that parents engage in open dialogue with their children when sorting out a succession plan. If you want daughter Mary to take over the business then tell her you think she’s got what it takes. Mary may be sitting in the office next to you trying to read your mind to figure out if you want her to succeed you or not. As the current business owner, you also need to be honest with yourself about defining your “exit stage left.” Are you planning to walk away completely or do you envision continuing to work in the business part time? If it’s your intent to parachute in on occasion then be honest with yourself and your successor. It can be frustrating to try to take over a business if the previous owner still wants to run the ship. It’s even more of a challenge when that previous owner has parented you through some of your “not so finer moments.”
“Parents remember us when we’re distracted teenagers who forget to take out the garbage when asked,” says Walsh. “Sometimes a parent passing the business on to a child will bring those personal examples into the work situation. You can’t transplant this type of knowledge into HR policies.”
So if family and business are such challenging issues to balance, just what are the rules for a successful passing of the torch? “It starts with establishing a set of rules for succession,” advises Walsh. Decide when and how you’re going to retire. Assign your successor the task of developing a plan for this transfer of power. Walsh also suggests that in the plan, make sure issues are addressed such as who works in the business, the role of spouses, an agreement that business will trump emotion, regular meetings to track the progress of the succession and financial compensation. “It’s imperative that this whole process is undertaken with the support of a financial advisor familiar with the unique issues related to family businesses,” emphasizes Grant Walsh. This is a great course of action, provided there are younger generations who wish to take over the business. What happens when nobody’s interested?
Many of the same rules mentioned above still apply even when a business is to be sold to a non-family member. “It’s still imperative that the business owner have those honest discussions with their children when they are adults and making career choices. It’s probably too soon to have these discussions when the kids are teenagers,” says Walsh. A good business advisor will be the best resource when preparing a family owned business for sale to a non-family member. The new owners will need to understand if the founding family members will walk away completely or agree to stay on in an advisory or management capacity to facilitate the transition.
When you think about it, pretty much every business starts as a family business. There is no more beautiful legacy than passing on an enterprise you’ve created and nurtured into a flourishing, healthy entity. With a plan and some skilled support from trusted advisors you can make sure that your family continues to flourish too.
For more information: Contact the Canadian Association of Family Enterprise (CAFE) at www.cafenational.org
Book: Family Business Succession: Managing the All-Important Family Component by Grant Walsh of KPMG Visit: http://www.kpmg.ca/en/services/enterprise/succession.html for details.
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