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Succession planning that works

It’s common to put off succession planning because you might not know where to start.

In my three decades of advising private companies, it has become obvious that succession planning starts in one of four places: 

The last two are not good. Therefore, where to start is an easy question to answer. If you haven’t already started succession planning, the “when do I start?” answer is now.

The more important questions are: if you were unable to run your business, or if you died, how would your business continue and how would your family be supported? If these answers aren’t written down in a clear plan with the help of professional advisors, you won’t be leaving a legacy. You’ll be leaving a mess.

According to a PwC 2021 survey1 of Canadian family businesses, “78 per cent see the business as the family’s most important asset.” When it comes to having a documented and professionally prepared succession plan to protect this asset, only 34 per cent have such a plan.

Two out of three family businesses are winging it or ignoring succession planning entirely. Are you? 

I’m pretty sure the one-third of businesses who have written succession plans do not correlate perfectly with emergency room and funeral home scenarios.

Yes, the purpose of this article is to annoy those who do not have a succession plan to take action—and to give spouses, siblings, family members, and shareholders full permission to make action happen.

Succession planning is about preparing for the future success of your business if you cannot lead the company in the future. It’s not about death and taxes. However, if you die without a succession plan in place, it becomes all about death and taxes, chaos and confusion.

Let’s look at the bad things that may/will happen to your business without a succession plan:

  • Without a clear succession plan, leadership flounders, your business goes downhill, is eventually sold for far less than its optimal value, or the doors are closed, and assets are sold at auction.
  • Siblings battle for control resulting in family feuds and ongoing resentment.
  • The business assets are not structured for protection and tax efficiency, resulting in high taxes and low net assets remaining for distribution to heirs, creating more resentment and financial hardship. 
  • If you believe as I do that the purpose of a small business is to become a larger business, the best way to do that is to think and act like a larger business immediately. Large businesses, and especially public companies, need or require formal succession plans to ensure strong leadership and protect the business and shareholder value. 
  • To get started, or to update your succession plan, take these steps.

The Succession Two-Step
Succession planning is a two-step process: ownership and management. The risk to ownership is the loss of management. Therefore, start your succession planning by focusing on management and the organizational chart. 

Yes, I understand it’s very difficult for many founders to think of replacing themselves as CEO, but it is definitely in the best interest of the business and the family to have such a plan in place.

Step One: Management
Where is the company heading and what kind of leaders will it need in the future? 

  1. Who are the people (yes, plural, more than one) being groomed as successors for leadership, where are the gaps, and how will you bridge the gaps?
  2. How are the successors being prepared for future leadership? 
  3. What does the future organizational chart look like, under different scenarios of leadership?

Step Two: Ownership
What do family members want? 

  1. What are the present and future needs of the owners and their families?
  2. What is fair, although not necessarily equal, when it comes to asset allocation? Fair is more important than equal. Yes, this is a major point for communication.
  3. What are the optimal structures for financial protection and tax efficiency? 

Make sure your advisors communicate in English and can draw your structure on one page, ideally. 

If you don’t understand the plan, it’s not a good plan. And it’s the advisor’s fault, not yours. 

I’ve seen complex plans and freezes that never resulted in any dividends—none, nada—to the founders because the plans ignored the business’s realities and financial needs. Don’t let this happen to you.

How will you feel knowing you have a succession plan in place that protects both your operating business as a valuable asset and your family’s financial future and positive future dynamics amongst family members?

Talk to your family about what they want. Then talk to your advisors about how to make it happen. If you don’t want chaos and confusion, start now at the kitchen table or the boardroom table.

1https://www.pwc.com/ca/en/private-company/family-business-survey-canadian-insights-2021.html accessed June 5, 2022


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