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OPINION: Family business succession – too early to plan? Never!

Early and informed planning is the best way to ensure your business and your family will prosper for generations to come.
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Laurie Bissonette, FCPA, FCA, is a Partner with KPMG Enterprise™. She can be reached at 705-669-2521 or lbissonette@kpmg.ca.

Family businesses face big challenges when passing the management and ownership of the business to the next generation. The KPMG Global Family Business Monitor, released in May 2018, found that family businesses from around the world face similar challenges when transferring the family business to the next generation, whether on retirement, through inheritance or at any other point. Let’s discuss some best practices when it comes to business succession.

Start early: Whether it makes sense to transfer the business during lifetime or on death, the earlier the planning starts, the smoother the transition will be. This includes involving the next generation early as well as ensuring that the succession goals of everyone involved are understood and agreed.

Seek professional advice: Family business succession is complex, and missteps can be costly. A professional adviser can help you understand the exemption and other tax reliefs available on the transfer.

Communication: When planning for the transfer of a family business, regular and open communication between the generations helps ensure that family members have aligned their expectations and vision for the business.

Develop a governance structure: Clarify and confirm your family’s objectives from a legal viewpoint and establish succession plans and ownership structures that facilitate meeting those goals. Establish a structure for governance that guides and safeguards the family business’s operations during and after the transfer.

Conduct regular health checks: Review business arrangements and holdings regularly. Conditions often change – in family relationships, business environments and tax legislation – review your succession plan and update it accordingly.

Monitor the value of assets: Monitor the value of the company’s business versus passive assets; restructure holdings if necessary to preserve access to exemptions or other tax preferences. Please ask your advisor about this – you do not want to miss out!

Review the terms of wills: Where relevant, ensure that wills and other testamentary documents are drafted. Be sure the terms are adequate to implement the succession plan and provide flexibility for heirs.

Consider trusts and similar vehicles: Trusts, foundations, graduated rate estates and/or similar entities are popular business succession vehicles. In many cases, trusts can be used to transition equity ownership and effective control to the next generation during the owner’s lifetime.

Even with all of the tips above there are also several cultural preferences at play that affect business succession plans. For instance, today, business owners are living longer, and millennials may have different aspirations and values than prior generations. Increasing longevity has the potential to disrupt business succession plans, as owners seek to remain active in the business until a later age. This results in a delay for the next generation to gain control over the business. The next generation may not be willing to wait to take over the reins. This situation may have the power to derail a succession plan. To maintain engagement, the next generation may need to have meaningful roles, be rewarded and feel valued.

Summary: A sound rationale should underpin all decisions about the future of the business. Early and informed planning is the best way to ensure your business and your family will prosper for generations to come.