Leaving your business to the children

You have worked hard to establish a successful business and your greatest wish is to pass that business on to your children. Achieving a smooth transition to the next generation can be a difficult challenge but here are seven tips to help the process along.

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1. Timing is everything – “You can’t force a succession plan on your children,” advises Chartered Accountant David Steinberg, Co-Managing Partner of RSM Richter in Toronto. “They have to have the interest, the aptitude and the ability to succeed you. The time to start planning is when your children have finished school and have decided to join your business.” When the time is right, it typically takes at least three and sometimes up to 10 years, to develop and implement the succession plan. 2. Be open and honest – “It is critical that all family members be involved in the process so that everyone participates and has a clear understanding of the succession plan,” advises Chartered Accountant David Webb, Regional Managing Partner with Meyers Norris Penny LLP in Waterloo. “Use a well-defined and well-documented process, and start by identifying the family’s goals and objectives.” 3. Remember that “fair” is not the same as “equal” – “Treating children fairly is the goal of most families dealing with succession planning,” says Webb. “However, fairness can be a difficult issue to address, if not all of the children are involved in the family business. Some children may have special needs. Others may have been more actively involved in the build-up of the business to its current value and some children may have pursued a career outside the family business. These issues need to be considered in any succession and estate plan in order to preserve family harmony.” 4. Be clear about the children’s roles – “There is entitlement based on birth and entitlement based on ability,” says Steinberg. “The best thing to do is to put the most capable child in charge of the company. It doesn’t mean that the other children can’t work in the company, but you usually can’t have more than one child in charge. While it can be a difficult decision for parents to make, it is often apparent which child is best equipped to run the company.” Making sure your children understand every aspect of the business, including what makes it successful, is also a key part of your succession plan. 5. Develop a comprehensive plan – “Parents often complete an estate or tax plan and think it is the same as a succession plan, but it’s not,” says Webb. “An estate plan is part of an integrated succession plan, but it is not a substitute for it. A good succession plan includes a strategic plan for the business, retirement, estate and tax planning, and transition, communications and contingency plans.” 6. Manage the transition process – “The transition can be short or long, but everyone’s role should be clearly understood,” says Steinberg. “If the parent doesn’t want to give up control, or constantly overrules the child, the child is going to get frustrated.” Webb adds that depending on the size, complexity and value of the business, the abilities of the children and the readiness of the parents, a transition can take from two to five years. 7. Talk to your CA – “Your CA can help because he or she is a neutral party and is not emotional about your business,” explains Steinberg. “They have seen a lot of businesses, know how a succession plan should work and understand what is right for your business.” Adds Webb: “A CA has the training and experience to help you transition your family business, secure your retirement and maximize the transfer of wealth to the next generation.” Brought to you by the Institute of Chartered Accountants of Ontario