Should you keep your business in the family?
Keeping your business in the family can be a great idea, but there are some pitfalls you should be aware of.
Family businesses form a large part of Canada’s economy. According to the Globe and Mail, 80% of all Canadian businesses are family-owned – but only 30% last into a second generation.
Deciding whether to keep a business in the family when the owner retires, and considering the potentially thorny issue of who to leave it to, requires some careful planning and consideration of what’s best for you, your family and the business.
Is it more important to you to leave something for a younger generation or to keep the business in the family? Selling the business and sharing the proceeds may prove to be a more generous gift in the long run, especially if potential successors haven’t demonstrated the acumen or interest in running your company.
If you do have a family member in mind who would be suitable, and who’s keen, consider involving them in the business well ahead of any leadership transition. They’ll become familiar with day-to-day operations, and you can be sure they’re cut out for the role.
Even if you’ve properly planned for ownership transition and know you’d like a family member to take over, the decision can still be very challenging.
If you’ve got more than one successor in mind, there’s still the issue of whether to leave the business to one person or to divvy shares between family members. While distributing the company among several parties might seem fairer, it can make running the business a nightmare for those stepping into leadership roles. This is particularly true if not all shareholders are interested in running the business or if they have divergent ideas on the company’s future.
And in some cases, there may be people who’ve indicated they’re keen to step up, but deep down you know they don’t have what it takes. This kind of thing can be very damaging for your business down the track.
According to a study conducted by the Canadian Federation of Independent Business, 81% of small business owners plan to hand off their business to someone else so they can retire. The study also noted that the most frequent barrier (44%) identified by successors was financing.
There are two distinct and conflicting issues here. If your successor is a family member, you’re in a good position to give them the financial help they may need. However, if you’re too accommodating you may put your retirement at risk.
There are many options for involving your family in the succession of your business. Taking the time to figure out what’s most important to you and your family will ensure that things keep running smoothly after you’ve put your feet up.