Manning Elliott’s Rick Gendemann talks about how leadership transition in a family business can be done effectively
In every family business, there comes a time when an owner begins to think about retiring or is unable to continue managing the organization for some other reason. The instinctual choice is often to look to other family members to take over the leadership role. While this scenario can play out successfully, transfer of ownership is not as simple as it may first seem. The transition requires careful, thorough planning to ensure it happens smoothly.
Unfortunately, most business-ownership transfers are not well planned. In fact, more than half of all businesses transferred to the second generation fail in the first three years. Furthermore, less than one out of five of those second-generation successors will successfully transition the business to the third generation.
To have the best chance of handing over the business effectively, business owners need to deal with the transition as a process as opposed to a single transaction.
Rick Gendemann, CPA, CA, is a business succession leader with Manning Elliott LLP. Here, he answers some key questions for those contemplating the legacy and transition of the business they’ve worked so hard to build.
How much time should a company allow for the transition phase?
To begin the process, you’ll need to set a date for the transfer of ownership. This is a “working” date and doesn’t need to be absolute. The important thing is to ensure the transition phase is a period of years—possibly three to five—rather than months.
Why do I need to allow so much time for the transition?
Aside from the fundamental need to transfer knowledge about running the business to the new leader, it’s important to consider the impact of ownership on non-family members who are actively involved in the management of the business. An abrupt change could affect relationships with key personnel and threaten the roles of those important individuals going forward.
There are also several other factors related to a transfer of ownership that come into play, including financing, legal, taxation, asset protection, business valuation and estate planning issues. All of this will be easier to handle if the transition happens in a well-structured way over a period of time rather than at a single or rushed point in time.
What factors should I consider when selecting my successor?
Be honest when analyzing the strengths and weaknesses of family members as potential successors. You need to separate issues of family loyalties and emotional attachments from the selection process, and focus instead on a person’s business acumen and management abilities.
Ask yourself: How committed is this person to the business? Do they have the management skills required to run the business? Is their business experience sufficient to lead the enterprise? Will they be able to grow the business? Should you be considering someone outside the family?
With more than 60 years of experience, Manning Elliott can help you manage the transition of your business successfully and smoothly.
Selected as one of Canada’s Top Small and Medium Employers for 2015, as published in the Globe and Mail, Manning Elliott also has a strong, diverse work culture rooted in a sense of family. To learn more about Manning Elliott, please visit our website at www.manningelliott.com or, give our offices a call at 604-714-3600 in Vancouver or 604-557-5750 in Abbotsford.
Manning Elliott LLP is one of the province’s largest independent regional accounting and business advisory firms with offices in downtown Vancouver (604-714-3600), Burnaby (604-421-2591), Surrey (604-538-1611), and Abbotsford (1-604-557-5750). The firm has been around for more than 60 years and employs over 200 professionals and staff.