The SuccessCare Program
The SuccessCare Program


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Choices for the Future - An Integrated Succession Plan


All business owners need to prepare a Succession Plan. The reasons are simple: they need to have sufficient wealth to live well when they retire, and they need to ensure that the business continues to thrive after their departure. In family situations, they need to direct how the business, and the wealth it generates, will move through subsequent generations.

The best plans include both "when" and "how" - choices which, if properly considered, can be incorporated into any Succession Plan.

When I first met Andrew, he wanted out.

As majority owner, Andrew had built the company from struggling start-up to a business which represented a valuable asset to him and to his two minority partners. Financial results had been improving for the past few years, and the future looked bright. One of Andrew's children had recently joined the business and was gaining confidence in a customer service role. His advisors had provided excellent advice on structuring his personal and financial affairs, both inside and outside the business.

However, Andrew was looking for an external investor to allow him to 'cash in' the value of his ownership, and to take away the problems of running the business day-to-day.

As we talked about why he wanted to sell his interest, it became apparent that Andrew was not sure his partners could operate the business successfully without his direct involvement. Family members were not ready to take the reins. Also, there were some challenging issues on the horizon that would probably require changes in the way the business worked. The business, in the foreseeable future, could not provide for his retirement.

What Andrew needed was an integrated Succession Plan. Together, we developed a three-year program, integrating his personal financial objectives with the ownership plans of his partners, a management plan, and a growth strategy for the business.

Now, referring to the Plan regularly, he is working towards his goal: to be financially independent of the business in three years, and to have a full range of choices when and if he decides to transfer his ownership. In the past several months, Andrew has changed the partnership structure of the business, he has reassigned a large part of his operational responsibility to a new senior manager, and he is building a sales team focused on new products.

Andrew has readjusted and reconfirmed his retirement plans, more certain that he can choose from a particularly wide range of interests. With a workable exit strategy in place, he is happy to continue building the business for the next three years, and has found new energy to make it happen.

Through the SuccessCare®Program, preparing an integrated plan like Andrew's is simple.

First, separate the Succession Planning issues into three appropriate areas.

The "Three Circles" model is useful in family-owned or owner-managed businesses. Often, business decisions are compromised because of conflicts between what is right for the business and the desires, abilities or biases of partners and/or family members who might be involved. Or confusion about decision-making responsibility for business affairs and partnership and/or family issues. Separating the Succession Planning issues into Family/Personal issues, ownership issues and Business issues, allows them to be viewed more clearly, and often more dispassionately.

In the Family/Personal area, identify and record your personal goals. These will include financial goals for yourself and your family, and personal, social and recreation plans for the present and the future.

In the Ownership area, specify how decisions are to be made, and how your family members, partners and business managers are to work together - both while you are running the business, and after you have ceased to be involved. A contingency plan is usually part of the plan in this area.

In the Management area, set the direction for the company and detail a business plan to drive the accomplishment of your personal goals.

Second, identify the Legal, Tax and Insurance tactics which can be applied to your circumstances. Most legal and financial advisors are familiar with their use - if yours are not, find some who are. Here is a summary checklist:

Legal TacticsTax TacticsInsurance Tactics
Shareholders AgreementSection 85 rolloverInsurance Coverage for the Company
Control SharesEstate FreezeInsurance Coverage for the Estate
WillsStop-Loss RulesTax Sheltered Earnings
Employment ContractsEliminate Non-Tax Deductible DebtCapital Creation
Creditor ProofingTaxation of Earnings in the CompanyStop-Loss Rules
Holding CompanyBonusing Profits to $200,000Shareholder Buyout
Shareholder BuyoutHolding Company
Stop-Loss RulesTrusts
Buy-Sell Agreements

Third, have your advisors apply the Legal, Tax and Insurance tactics which best support your plans in each area.

Finally, if they have not been fully involved in their development, communicate your goals, decisions and plans to your family members, your business partners and your business managers. Identify the roles they each have in implementing and achieving your Succession Plan.

This integrated approach to Succession Planning starts with your personal goals. It identifies a framework for decision-making during and after your exit from the business. It applies the legal, tax and insurance tactics which best suit your requirements. And it establishes a business plan which supports the achievement of your overall goals.

Adapted from the article entitled "Choices for the Future: An Integrated Succession Plan" by Ian Richardson.




  
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