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Holistic Approach to Managing Wealth



Succession - The Softer Side

Consider technical as well as personal dynamics for a smooth transition.

Family businesses face a lost opportunity for the successful transition of their business if they view succession as an event rather than a process. With increasing regularity, succession planning primarily focuses on the technical and legal issues at the expense of personal and family dynamics. Through the introduction of an integrated, holistic process a family can be better positioned for the successful transition of their business and personal fulfillment in their next stages of life.

A holistic planning approach focuses on both the technical and personal dynamics within succession. It deals with the issues associated with the current generation, the next generation, management and ownership, while developing an understanding of the key participants, their roles, skills, goals and the key factors influencing them.

Succession planning typically focuses initially on the current generation and considers the strategic tax issues, the appropriate legal structures along with their personal finances and estate. Too little attention is often paid to the current generation’s need to determine what life will look like after leaving the business. This is a critical component of a successful succession plan. Leaving the business will often create a void, which, if left unfulfilled, can result in the current generation not being able to separate their personal identity from the business. Any plan is incomplete without a clear understanding of how the current generation will maximize their skill set and time, to generate a sense of fulfilment outside the business.

To further enhance their ability to separate, they need to create a clear cash-flow plan that meets their objectives and has limited reliance on the continuing success of the business. If there is too much of a reliance on the business performance in order to support their lifestyle, it will inhibit the next generation, or new management, from the freedom they need to move the business forward. The best transition for the business is not always a family transition. However, if a family transition is the desired outcome then particular focus must be placed on the next generation.

A predefined outcome should not exist for a succession plan to be effective. Often the current generation has already decided who will run the business and how that should look. Engaging the next generation in the process must provide the opportunity for them to be released from an obligation to work in the business. With no pre-defined outcome, the process has the freedom to move toward a viable succession.

Similarly, business participation and ownership for the next generation should not be viewed as an entitlement, and therefore a clear plan for building their skills and expertise should be a part of the strategy. Growing up in the shadow of the success of parents or relatives typically comes with both personal and professional issues. In order for the successors to build confidence and to ease the transition with employees, it is often helpful to gain experience through outside employment prior to joining the family business. Further to this they should receive mentoring, although not typically from the parent, as well as the transition of knowledge and key business relationships. The more confidence they can gain in an outside environment, the greater the potential for a successful transition. A plan can provide a platform for the development of skills and experience, but each individual also has their own natural gifts. These need to be considered when integrating them into the business, especially as they will likely possess a different set of talents to that of the current generation.

The management team surrounding the successor is important to the outcome of any succession. For this reason a clear knowledge of their expectations, skills and motivations must be understood and integrated into the strategy. Plans can be derailed by unrecognized expectations or motives of non-family employees. However, with the right team in place, the platform for success is enhanced. Through this process, it may be determined that employees or management with complementary skills to the successor, should be hired to support them.

The current generation’s financial affairs are typically the primary focus of the planning, while the finances of the next generation may be overlooked. This can be a mistake, especially if the business has a significant value. The plan must include a focus on the personal financial situation and needs of the next generation, to ensure they are equally equipped to deal with the financial and management aspects of ownership.

While a technical succession plan should effectively transfer ownership legally, it will fall short of properly preparing the family for the full impact of the transition. The development of a governance structure within the family will provide a platform for communication and conflict resolution, particularly where ownership extends beyond those simply working within the business. This governance may include a family vision to provide a common purpose and direction, a code of conduct to define expectations, and family counsel to support the vision and the individual interests.

Business succession is typically ignored to deal with the current urgent business needs, but the temptation to procrastinate should be avoided. Achieving a successful transition takes time and energy, and one professional cannot accomplish a holistic plan of this nature. Rather, it requires the expertise of a team of professionals in disciplines such as wealth management, financial and estate, legal, and business succession that also understand and focus on the complex family dynamics.

Covenant Family Wealth Advisers provides holistic counsel in the areas of Financial and Estate Planning, Wealth Management, Philanthropy and Family Business. All Investment services are provided by Covenant Capital Management Inc. Covenant Capital Management Inc. provides discretionary money management services in the provinces of BC, ON, QC and AB.

“The plan must include a focus on the personal financial situation and needs of the next generation”

Family. Wealth. Harmony.®

Covenant Family Wealth Advisors' certified financial advisors and business succession planning experts help guide families through the technical and emotional aspects of managing wealth, estate planning and business succession. Our experienced financial management team uses a Christian perspective that is rarely found in traditional financial planning, and we work closely with you to develop a personal Holistic Stewardship Plan that encompasses financial planning, estate planning, family business transition and philanthropy.

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