Foran says numerous studies have shown that
about 70 per cent of business transitions from the
first generation to the second end up in failure and
90 per cent of transfers crash and burn by the time
the third generation is at the helm.
Foran says maintaining a harmonious relationship within the family during this tumultuous time
is crucial. It’s easy to see how the permutations and
combinations of ownership and leadership can spiral out of control when it’s possible the future of a
business owned by two parents could be passed off
to their three children or an even a greater number
of grandchildren.
“It’s very difficult for families to look at themselves, the kids and the needs of the family business
objectively. If you try to keep it in the family, there’s
a whole lot of stuff you have to get right,” he says.
Black says there are several signs that entrepreneurs should recognize as signalling it’s time to move
on. In some cases, the entrepreneur has had enough
of the daily grind. In others, their health may be sapping some of the energy needed to guide the ship.
“By the time (your health is an issue) it’s a little
late for succession planning. It’s reacting and trying
to make the best out of a difficult situation,” he says.
Black says a healthy business should have a normal
succession plan built into it. Quite often, companies
will go through a number of stages where they’re
very dependent on the owners but as enterprises are
built up over time, they become less dependent on
their creators and can operate on their own.
“When you retire or upon your death, you’ve grown
a business that is ready and able to be sold. If you grow
it in a healthy way, you’re poised for succession. I think
growth and succession can be synonymous, not mutually exclusive. The old school is Plan A and Plan B —
you’re running at full speed and then ‘I’m coming out
of it, how do I do it?” he says.
Accountants are in a unique position to play a
pivotal role in the business succession plans of their
clients, according to Dale Gislason, a partner with
Gislason Targownik Peters in Winnipeg. He says because accountants often have a lengthy history of
doing business with their clients, they have been
able to form opinions on the strength and weak-nesses of the management team and whether other
family members have the necessary attributes to
manage the business.
He says the transition is often much less compli-
cated if a third party is involved rather than family
members. Owners who say they want to step back
from the company but are unable to for whatever
reasons, run the risk of snatching much-needed
training opportunities from their children, where
they could gain the experience and skills they need
to run the business. The parents could also under-
mine their offspring by continuing to hang around
after they’ve stepped down and create confusion
about who is actually in charge.
Less than
40 per cent
of business
owners have
turned their
attention
to finding
or naming
a successor,
which could
lead to a
crisis in the
Canadian
marketplace
in the not
too distant
future.
40%
