How to Fit Succession Planning into Your Holiday Gathering

The holidays are a time to reconnect with loved ones, enjoy some delicious food and talk about… succession planning?

Family gatherings can be an excellent opportunity to talk about the future. With everyone gathered under one roof, families have time to discuss the passing of the intergenerational business torch — provided you go in with a plan (and realistic expectations).

As the Olsen family learned first-hand, a succession plan isn’t typically drafted in one night. It took owners Greg and Lynne — and, most notably, their three sons — two years to complete the details of how to pass down the family business. But with some honest discussions and the support of their MNP advisor, they were able to devise a succession strategy that worked for everyone.

Here are a few lessons they learned along the way:

1. Determine — early on — what everyone’s role will be.

Not every child wants to take over the family business and that was definitely the case with the Olsen family. Although brothers Jeff, Mark and Sam had helped out in various capacities over the years to support their parents, as they got older, Jeff opted to pursue a career in IT, while Mark and Sam gradually took on more business responsibilities.

While Mark and Sam aspired to one day take over the family business, Jeff did not — which was good to know upfront and an integral first step in developing a fair succession plan.

2. Consider the whole picture.

Mark and Sam didn’t always agree on business decisions. As their parents inched toward retirement, they wondered how they would run the business together but they were also concerned about how they would pay their parents and how Jeff would fit into the business’s future.

As their MNP advisor eventually pointed out, there were other factors to consider as well, such as tax issues, division of business property, how would the next president be decided, should employees be involved as owners and the funding of Greg and Lynne’s retirement.

3. Call in the professionals.

With everything laid out on the table and the help of their MNP advisor, they were able to tackle each challenge one by one. The Olsen family knew about the industry issues most pertinent to their business but they weren’t succession experts, which is why they called on the services of MNP. Brian, their advisor, helped reorganize the structure of ownership to reduce Greg and Lynne’s tax burden. He also recommended a buy-out plan and that Mark and Sam consider retaining their parents as advisors and directors, thereby creating an income stream for Greg and Lynne during their retirement.

Finally, Brian assisted the brothers in developing a plan for the business that would align both with the parents’ payout, and the brothers’ vision for growing the business, and suggested that the brothers operating the business put a formal structure in place to govern how they would work together. And, to prevent miscommunication, it also included a dispute-resolution process.

4. Explore your options.

With Greg and Lynne’s retirement taken care of and Mark and Sam’s business take-over figured out, the last person to factor into the succession plan was Jeff.

The family looked at different scenarios, including giving Jeff an opportunity to hold non-preferential shares in the business, but Mark and Sam wanted to consider an alternative. In the end, the solution turned out to be a property that Greg and Lynne had inherited 25 years before. Jeff ended up inheriting that property, along with a slightly larger share of his parents’ non-business assets, like their RRSPs and savings.

As this scenario shows, it’s unlikely you’ll draft an air-tight succession plan on the first pass. That said, holiday gatherings can determine which family members are interested in which aspects of the business and explore options for those who aren’t. The key is to approach the conversation in a civil and professional way.

If you’d like to learn more about how to get the ball rolling on a succession plan, contact your MNP advisor.