By Krista Han – Partner, Grant Thornton LLP
Family-owned businesses are a cornerstone of Canada’s economy, yet trusted advice is critical to help them move from one generation to the next. Open communication and governance models can set entrepreneurial families up for future success.
“Transition is not something that you do once and it’s done,” says Krista Han, a partner at Grant Thornton LLP and national leader of the company’s family business services.
According to the Family Business Institute, just 30 per cent of family-owned businesses last into a second generation, 12 per cent reach the third and three per cent get to the fourth generation or beyond.
Ms. Han, a designated Family Enterprise Advisor who is based in Fredericton, says that many families mistakenly fail to think of the succession of their business as a process. They also sometimes avoid dealing with larger transition and continuity issues “because they don’t know where to start.”
Take it one step at a time, although “it’s not a linear set of tasks,” she warns. Begin by creating an environment for discussions to occur and decisions to be made, led by a champion or champions within the company and guided by professional advice.
A suitable adviser should be someone with experience and a Family Enterprise Advisor designation who considers the impact of the transition on the whole family, Ms. Han says. She recommends starting with a “chemistry meeting” to develop a level of comfort among the family for when sensitive and emotional topics inevitably arise. Important questions to ask include, “Where do you see yourself and the business in five years? In 10 years?”
A good governance model is one with three circles representing the business, the owners and the family, with each overlapping in the centre, says Ms. Han. Each group should have its own support structure; for example, a board of directors for the business, an ownership council for the owners and a family council for the family.
“Even if you have the same people in each circle, you should talk about different things,” Ms. Han explains. “You have to keep the lines of communication open.”
Such structures can build a strong foundation, although entrepreneur families will find that the process of transition “never ends,” she says.
Even if you have the same people in each circle, you should talk about different things. You have to keep the lines of communication open.
Partner, Grant Thornton LLP
They can nevertheless be poised and ready with a plan created to achieve the best outcomes. “You’re constantly refreshing, continuing to make decisions and asking yourself, ‘Is it the best that it can be now and for when changes occur in the family business system?’”
Keeping the business alive is usually the point of creating such structures, but in some cases the enterprise will change significantly, and it may not even continue to run in its current form, Ms. Han allows. “The family will define success for themselves.”