Passing the torch: The complexities of succession planning

It is a common scenario.

An entrepreneur has put their heart and soul into developing a successful business and now has some crucial decisions to make about who will run the business and how the accumulated wealth will be shared after he or she retires or dies.

Succession planning is a detailed, often emotional and personal process that can – and often does – take years of contemplation and complex negotiation to complete. 

The benefit? No surprises, no expensive and ugly family legal battles over a will and, hopefully, happy and contented beneficiaries who all feel they have been treated fairly.

“If you have a successful business, there is so much to be gained from properly planning for the transfer of that wealth to the next generation,” says GGFL partner Deborah Bourchier.

“And it’s a far cleaner process if the business founder is involved during the planning process,” she says. “There are invariably difficult conversations about who is inheriting the business, who is inheriting the associated built-up wealth and who is not. If there are questions, the founder is there to answer them.” 

The founder can also be an important mentor to the family member who is taking over the business.

Bourchier has chaired numerous discussions for business owners and their families who have been clients at GGFL for decades.

“We treat our clients in a very holistic way,” she says. “We don’t just understand the client’s business, we build strong, trusting relationships with their families. 

“It helps enormously when we get to the stage of legacy wealth planning because we understand the business, its culture and the founder’s motivations and aspirations,” Bourchier adds. 

Where to start

The succession process often begins with an informal chat with a business founder and can evolve year after year into detailed family discussions. Finally, a fully formed plan emerges.

“A couple of my recent succession planning processes took more than two years but they can take up to 10 years,” says Bourchier. “I have been at family meetings with 20 stakeholders. Sometimes there are disagreements, sometimes it is harmonious.”

The challenges can be as varied and complicated as any imaginable family dynamic.

Perhaps there are several children to consider. What if one or two have no interest in the family business and the others do? How do you treat them all equally?

What about spouses of the founder’s children, or blended families where children from previous marriages are part of the equation?

According to Bourchier, Ottawa is a real estate rich city and real estate accounts for a large portion of the business community’s privately owned wealth. 

“There is so much to be gained from properly planning for the transfer of wealth to the next generation.”

But if a succession plan won’t come into effect for several years – until the founder dies or retires – how do you accurately assess the future worth of a building or business? This is a necessary assessment for future beneficiaries who prefer their equal share in cash.

When a succession plan is close to completion, GGFL will help determine the current value of property or business. GGFL Partner Kody Wilson is a chartered business valuator who can help with the valuation process.

That value is then “frozen” and is used to determine an equivalent cash amount for those not interested in the business. Any future increase in value is allocated through shares. 

So, how wealthy do you need to benefit from this process?

“You could own one income-generating building worth $2 million and have just two beneficiaries,” says Bourchier. “In that case, creating a plan would be relatively inexpensive and could eventually pay for itself in saved taxes and legal costs.” 

The GGFL partner says it’s a privilege to be trusted to a degree that clients will ask her to chair these sensitive family discussions.

“We know these clients well and understand each other,” she says. “They’re not afraid of having difficult discussions with me moderating or leading those discussions.”

But rarely is the process without complexities.

“Money,” she adds, “is a very sensitive and private thing.”