Handing the keys to a family member as you head out the door is
business succession gone wrong, says Paul Coleman, national leader
of succession and estate planning with Grant Thornton LLP.
Typically about 10,000 people transition their privately held
business each year. However, a variety of factors including a lack
of liquidity in the market following the 2008-09 slowdown saw many
defer their succession plans, he says. "There is now a pent-up
demand of people looking to divest which is bringing a wave of
succession. The problem is that only a small fraction are prepared
for the eventuality."
It typically takes between three and five years to properly
prepare to transition a business, says Coleman. Yet according to
recent research, only 16% of family businesses have something that
could qualify as a legitimate succession plan, he says, and of
those with leaders in their 60s, as many as 43% have no exit
strategy at all.
There are many layers involved in developing a succession plan.
They include influences on current and future owners; ramifications
for employees and management who are often not properly considered
in the context of the business succession; and implications for the
role of the business within the broader community.
Often people have a natural desire to transfer the business to
their children, but the next generation may not have the desire or
skill set necessary to adequately step into roles or ownership and
senior leadership. "It's important to consider all the
potential succession options. If you enter into this process with
blinders on, the outcome is rarely positive," says
Succession planning must begin with healthy, honest
conversations without limitation, he says. "Family dynamics,
dysfunctional relationships and poor communication all contribute
to the challenges of exiting a business. A further common
succession challenge is created when parents aspire to divide a
business equally among their children. While their desire may be
family unity and fairness, the opposite may be the ultimate
outcome. It's a recipe for disaster."
Bringing in a third party facilitator will help create an
environment of transparency and ensure difficult issues are faced
head-on, advises Coleman. "It may take months of repeated
discussions to find alignment among all those involved. While one
or another party may not like the final outcome, they will
understand why certain decisions were made. The goal is to
formulate a plan that will bring the highest probability of
success, whether that means transition within the family or sale to
Dealing with the 'soft side' of a transition is the most
important component of success, he says. "Too often people
default to the technical aspects because, with the help of legal
and financial professionals those elements of succession are easier
to deal with. But in order to succeed, any latent conflicts must be
brought to the surface first."
Planning early and often will also position owners for the best
possible outcome, adds Coleman. "To stand the test of time, a
strategic plan must be revisited frequently to make adjustments
based on family changes, health issues, the economy and
marketplace, and other influencing factors."
Finally, business owners must focus on retiring to something,
rather than from something, he notes. "For entrepreneurs,
their business is an extension of who they are. Finding an outlet
for their energy and passion, such as mentoring programs, boards of
directors, or charitable works, should be part of the equation.
They have been high-performing, successful individuals who have
effectively transitioned their business but, left to their own
devices, they may not be as successful in transitioning
This story was produced by Postmedia Works on behalf of
Grant Thornton for commercial purposes. Reprinted from Financial
Post, in the "strategy" section, sponsored by Grant
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