WHEN A FAMILY BUSINESS HANDS OVER THE REINS
Denise Deveau explores the ground rules that can be applied when putting together a succession plan
When Bill Fielding established Fielding’s Tire & Auto business in Kingston 35 years ago, he had no succession plans in mind. But when his son Erik showed an interest in taking over many years later, that all changed.
The younger Fielding says his parents had never talked about it when he was growing up. “They actually wanted me to stay away, because of the long hours and everything. But I was always interested in working with my hands, so I started out in the bay area. After spending time in the office and learning a bit more on the numbers side, I realized I could probably do this.”
It took close to five years of discussion and planning to complete the transition in 2014. During that time, there were countless meetings with family members, financial advisers, accountants and lawyers.
Son and father learned a few things during the process. For example, it’s best for each person to get their own financial adviser to eliminate any conflict of interest. There were also recent changes in business registration requirements that had to be dealt with.
Now fully retired, the elder Fielding likes to drop by on occasion.
“He has a wealth of knowledge. He’s a good consultant,” the son says.
For Mike Merrigan Jr., president at Peak Audio in Halifax, the succession conversations with his father have only recently started in earnest. The business was founded by his grandfather and father 40 years ago.
Taking over wasn’t the plan when he started working there at the age of 20. But once Merrigan started looking at competitors in the industry, he saw a lot of potential for the company. “It needed to grow and change, and I saw an opportunity to apply some of the things I learned in university.”
Convincing his father and grandfather wasn’t always easy, he says. But they eventually went along with his ideas. Since then the company has doubled its revenue. With his grandfather’s recent passing, Merrigan says it is now time for more serious discussions about succession planning.
With multiple family members in the picture, succession planning wasn’t always easy, Merrigan says. “But we did manage to find a system that made everybody happy.”
Transitioning a business to family members is never a simple task, says Jason Storsley, vice-president of small business at RBC, Toronto. While a succession plan can take on many forms — from a sale to an outside investor to passing on of the reins to a partner or relative — there’s more to consider when a family is involved.
“One assumption for many owners is that the business will be passed down to their children. But that doesn’t always end up being the case. You have to have direct conversations about your family members’ interests and timing. Not everyone is necessarily interested or invested in the business to the same level.”
The most common misconception for family business owners is that fair and equal are the same, he adds. “Fair can be very, very different from equal. In fact, equal could actually be unfair in business. It’s not like divvying up two scoops of ice cream to each person. Each contributes different skills and resources.”
The following are some basic ground rules that can be applied when putting together a family business succession plan.
Formulate the plan and start it early. “The earlier you start having conversations the better. You want time on your side,” Storsley says.
Don’t assume everyone knows the plan. “Some people may have their own ideas and aspirations so you need to find that out.”
Allow enough time for family members who are interested to acquire the necessary skills. Depending on the type of business, those may be built over time, learned, or acquired through an apprenticeship.
Expect there will be a few bumps and twists along the way. “The big mistake people make is that family dynamics won’t come into play,” Storsley says. “They always do. That’s when you need to have candid conversations and clarify roles.”
Consider options for non-interested family members, which won’t affect the running of the business, such as alternative assets or dividends.
Think about an exit plan that suits your retirement goals. “Some owners will bow out cold turkey. Others will maintain a minority stake or collect dividends. Some will stay on a part-time basis. There are all sorts of avenues you can take when exiting,” Storsley says.
The biggest decision for the Merrigans was whether they wanted the business to remain a going family concern or not, despite potential difference of opinion. “It’s not without its challenges, but we’re strong as a family and always manage to find a way to get past our differences,” Merrigan says.
“We definitely have a game plan now.”
You have to have direct conversations about your family members’ interests and timing. Not everyone is necessarily interested or invested in the business to the same level.