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You have worked hard your whole life, and you are flirting with the word ‘Retirement’. What does retirement mean? For business owners that are accustomed to going a hundred miles an hour, seldom does it mean making a dead stop and relaxing on a beach or playing golf all day. It’s just not in your DNA. I like to refer to retirement as being the time that you stop doing what you ‘Have’ to do and start doing what you ‘Want’ to do.

While you are running your business, you are likely one of the first, if not the first, into the shop each day. You are likely involved in many aspects of the business and the key driver of the operation or sales. Sure, you might get out golfing with a supplier on occasion but for the most part you feel like you need to be involved every day. At some point this will need to change.

Are you thinking of transitioning the business to your children, nieces/nephews, some key employees? This seems like a tremendous option that would lighten the day-to-day load of running your business, while still allowing you to have some involvement. However, you may have seen these statistics before; only 30% of businesses survive the transition to the second generation and this drops to just 10% of businesses surviving transition to the third generation. Not good odds! But with proper planning, this doesn’t need to be the case.

Careful planning and a thorough look under the hood of your business can significantly increase your chances of success. It starts by having open, honest, frank discussions with your children and/or key employees and ensuring that they truly want to take on the responsibility of running a business and then determining with rose-coloured glasses off, are they up to the challenge. Identifying their weaknesses and creating a plan that allows them to develop the necessary skills and experience over a period of time can help increase their chances of success. Or the reality might be that they do not poses the ability to be able to develop some of the required skillsets (not everyone is built to be a salesperson), but it doesn’t mean that they don’t bring their own strengths to the table and that you can recruit some new talent to the team to help support them.

Walking through this initial step early on can help you determine if transitioning the business to the next generation is the right decision for all involved. This takes time and may merit having impartial outside consultations with a firm such as Connecting for Results that can do an analysis of your business, your children’s and key employees skillsets, and even assist recruiting new talent should it be required. If after careful review and discussion this is not the most appropriate direction for the business, you will at the very least be fully informed and can take the next necessary steps to create a different exit strategy.

Other important considerations need to be taken into consideration. How do you transfer the business to the next generation that is fair and equitable to them but also protects you financially. Strategies such as estate freezes are common mechanisms used. Typically, in an “estate freeze,” the person who owns the business trades their regular shares in the privately owned company for special shares (preference shares) worth the current market value of the company. This swap locks the company’s value into these preference shares owned by the owner. As the business increases in value, this growth in value is assigned to whoever holds the new growth shares. The main purpose of an estate freeze is to transfer any increase in the company’s value to the owner’s children, other relatives, or a family trust. The transfer of your business to the next generation takes careful planning and consideration and should be discussed in detail with your accountant and lawyers.

Often overlooked but can create disharmony in a family are in situations when the business owner has more than one child. The first is actively involved in the business and is the likely successor to the business. The second child is an engineer, nurse, teacher and is not involved in the business. Is it fair to the second child that the first child receives the business? Should consideration be made to equalize your estate to ensure fairness to all children? This is a consideration that is often overlooked and should be discussed and fully explored in order to avoid future family conflict.

Deciding to transition to the next generation takes careful consideration, planning, and time. The sooner you start the decision-making process the more time you have to ensure a smooth and successful transition for everyone involved. You have worked hard to achieve the level of success that you enjoy, proper planning will assist in ensuring that this success continues for generations to come.

Michael Suter is a Certified Financial Planner (CFP) and a Certified Executor Advisor (CEA) with over 20 years of experience as a senior leader and past printing company owner. He leads the Mergers and Acquisition division of Connecting for Results (CFR). To work with Michael, contact us.