Defusing the Family Business Time Bomb: 4 Important Threats to Understand, Now!

This article was published by CMC-Canada in the Winter, 2019 edition of Consult


The Top 4 Threats to your Family Business in 2019
Many of us are familiar with family business leaders in our community; perhaps, you were raised in this environment or are managing a company yourself.  Family businesses represent a considerable segment of the Canadian economy and have the potential to be unstoppable; where everyone works together to move forward with common purpose.  Family businesses, however, can also be plagued with the conflict and strife that tend to be associated with relationships that are close, personal, and longstanding; this reflects the other side of the coin.  By their very nature, family businesses can be tricky.

There is something more, however, that business leaders need to be concerned about; something that could impact the future of both their company and their family’s wealth, and it is simply this: Family businesses are facing the most explosive challenge in a generation.  The reason?  Seldom have so many potential threats been evident in our external environment, many of which make headlines on a daily basis.  Consider the following:

  • Demographic factors.  Experienced advisors know that the majority of aging business owners do not have a succession plan and research has supported this finding over the years.  They also do not fully appreciate the reality that there are a limited number of potential successors, in terms of those who have the necessary skills, interest, and capital to take over a company.  This fact alone has the potential to halt business transition in its tracks.
  • Disruption of key industries.  The manner in which we live has, and continues, to change.  Consumers and companies procure goods and services differently than in the past, resulting in the need for new and complex business models, many of which are supported by rapid digital and technological advancement.  Companies that do not keep up with marketplace expectations not only face declining demand, but also the risk of obsolescence, in terms of transition to someone else.  This can be a sobering and disappointing reality for many business leaders.
  • Significant change in the global economy.  The daily headlines in our world are often characterized by widespread change, including in areas such as trade, tariffs, political alliances, and business requirements.  This ongoing evolution brings uncertainty, with the potential to significantly impact a company’s planning efforts, financial results, and valuation upon transition.
  • Uncertain financial times.  Recent tax changes in a number of areas have generated many questions from family business leaders, impacting areas such as income distribution and investment opportunities.  When coupled with increasing interest rates, accessing the capital that is so integral to business growth and transition strategies could become increasingly difficult, a challenge that especially impacts young entrepreneurs and potential successors.

Any one of these developments can have a significant impact, but when combined, it could create a situation that is impossible for an unprepared company to overcome.  When these areas are considered in the context of typical family business problems, the stage is set for unprecedented challenge; one that impacts families, companies, and Canada’s business community as a whole.

The reality, however, is that many business leaders are unaware of the degree to which these factors have developed, often as a result of not spending a sufficient amount of time to fully understand the external environment, including industry and market trends and developments.  Since this is clearly a critical time for business leaders and their families, Evelyn Jacks and I decided to write our latest book, Defusing the Family Business Time Bomb.  This isn’t just another “family business book”; rather, it brings a common-sense approach to addressing the many challenges that are associated with building a company that has the potential to be sold to someone else in the future, all during highly uncertain times.

Here’s a final thought: As business leaders in great numbers face retirement, it is only the well managed and strategically positioned companies that will have relevance in the future, enabling them to be transitioned to someone else for a “good to great” level of value.  This stark reality is something that must be recognized by both founders and successors alike.

Escaping the Demographic Trap

Many family business leaders have the expectation that their company will eventually be passed to the next generation and maybe even to the one after that.  Perhaps this is why they established the company in the first place: to provide for the family’s financial needs over the long term, building wealth and security in the process.  Having possession and control of this type of “economic engine” brings with it the power of options and the benefits that are associated with not having to rely on others to earn an income.  Achieving longevity isn’t so easy, however, as research indicates that successful passage of a company to future generations is not typical.

The current environment in which we live is characterized by a number of important realities that impact long term business survival: many companies are led by aging business leaders, most do not have a formal succession plan, and the next generation is getting restless.  Couple this with a backdrop of significant disruption, in terms of technological, economic, political, and social factors and it’s easy to recognize that these days are like no other.

Let’s briefly consider what the current demographic environment means, in the context of family businesses:

  • Business leaders are remaining engaged with their companies for a longer period of time, as traditional retirement has become less of a rite of passage and people are more inclined to lead an active life that includes work.  The other side of this trend includes realities such as needing to work longer to support lifestyle expenditures and indecision around how a company should be transitioned (and family squabbling doesn’t help).
  • Potential successors are seeing little advancement in terms of succession, resulting in the decision to consider other options, beyond that of the family business.  As successors themselves get older, this is understandable, however, it can blindside a founder, leaving them to wonder how their “succession plan” could have gotten away.  This could have serious implications for the future of a company, leaving the business leader to revisit the issue of succession entirely or little in the way of viable transition options.
  • The number of potential successors is limited, in that the next leader is only a realistic option if they have the necessary skills, interest, and capital to undertake a transaction.  This group is further reduced by family members who have moved on to pursue other opportunities, in a demographic group that is already smaller than the generations ahead of it.

When it comes to demographics, you can run, but you can’t hide.  At some point in time, all companies will require new leadership if they are to continue to operate, and the extent to which this can be done successfully is largely dependent on one thing: thoughtful and formal transition planning.  As simple as it might sound, research has shown that the vast majority of business leaders do not do this.

Learn more about the implications of demographics and how you can avoid the “trap” by reading Defusing the Family Business Time Bomb.   Use promo code familybusiness to save on the price of multiple copies, and pay no taxes and shipping costs on all purchases of our book, through January 27, 2019!  The future of your company and family’s income stream will thank you for it.

BOOK RELEASE: Defusing the Family Business Time Bomb

I’m pleased to announce the launch of my new book, Defusing the Family Business Time Bomb!  This isn’t just another family business book.  Why?  Because family businesses are facing the most explosive challenge in a generation.

The reason?  While it is quite normal for a typical family business to be inundated with challenge and change, seldom have so many potential threats been evident:

  • Demographic factors.  The majority of aging Baby Boomer business owners do not have a succession plan and don’t appreciate the reality that there are a limited number of potential successors.
  • Disruption of key industries.  New, complex business models and rapid digital/technological advancement have the potential to reduce valuations and make transition to new ownership either irrelevant or much more costly.
  • Dramatic change in the global economy.  Makes strategic planning difficult, increases competition, and could escalate the cost of doing business, thereby shrinking profit margins.
  • Uncertain financial times.  Complex tax changes, restrictions to family income sprinkling, and a new clawback of the small business deduction all impact profitability, investment opportunities, and access to capital. This challenge could be especially difficult for young entrepreneurs or successors.
  • Typical family business problems.  The conflict, apathy, sudden or emerging illness, or control issues can affect relationships, decision-making and, ultimately, the health of both entities: the family and the company.

Business leaders are under siege, but do they know it?  These issues are significant and very much present in the current business environment, with additional evolution and challenges occurring with each day that passes.

Whether you are a long-time business owner getting ready to transition out or a new entrant to the “gig economy”, poised to grow and expand, you will appreciate this book for its contemporary and practical advice. It brings a common-sense approach to the challenges associated with building a company that has the potential to be sold to someone else in the future. This from two experienced authors and business leaders who have helped the owners, executives, investors, and professional advisors with whom they work to prepare for the most explosive challenge in a generation: the retirement of the Baby Boomers and transition of their companies to a new guard, who face pitfalls and opportunities of their own.

Join me and Evelyn Jacks on this important journey for your business and your family.  Order your copy here!

MEDIA: Appearance on SET for Success (680 CJOB Radio)

Pleased to have appeared on SET for Success on 680 CJOB with Richard Lannon to discuss some important areas that business leaders need to address to successfully grow and develop their companies.  Being a market leader is a goal for many, but in order to realize a company’s full potential, it’s critical to identify what that means for your business and then develop and successfully implement the plan.  This process is one that is fraught with challenges, but having the right assistance could made success much more likely, to the benefit of your company.

As a business advisor, my approach is to bring a holistic perspective, recognizing that all functional areas within a company are related and impact one another.  For a company to grow on a sustainable basis, all functional areas must be operating well, to provide the foundation for building capacity and sound operations.  Those who do this well are in a position to become market leaders, representing the choice of investors, strategic partners, high calibre employees, and customers.  Those who take a piecemeal approach tend to end up frustrated, wondering why their results are not better.

When companies are growing (or planning to do so), they must also recognize that capital is an important component; this is something that business leaders tend to discover too late.  As a former venture capitalist still active in the industry, the vast majority of business plans that I see are not investor ready; this is the case at least 95% of the time.  Investor readiness involves understanding the expectations of financial partners and investors, which differ significantly from where business leaders tend to focus their efforts.

Advisors could be helpful in a range of areas, including assisting companies with investor readiness and developing strategies for growth and implementation.  As important as planning is, the most significant failures could occur during the implementation process, which is another lesson that business leaders tend to learn too late.  If the objective is to generate sustainable growth and build value in a company so it could be transitioned to someone else in the future, market leaders would not attempt to do so without sound advice.

You can listen to our conversation hereContact us to learn more about taking the next steps in growth for your company.

When Canada Day is also Tariff Day

Happy Canada Day!  I’m very proud to live in such a beautiful, diverse, and well respected country.

This year, Canada Day includes all of the usual celebrations, but also a particular action that demonstrates our strength and resolve as a country; newly imposed tariffs on the United States, in response to those that have been in force against Canada and other countries since June 1st.  As indicated by both our Prime Minister and Foreign Affairs Minister, Canada had “no choice” in terms of imposing these tariffs, which represent a response in equal measure, not escalation.  Our government has also taken various steps to help industries impacted by the tariffs, including export diversification, training, and business liquidity support.

Although there are various complexities around how tariffs work, the expectation is that there will be price increases on some items, for both consumers and companies, making the need to source products that are not subject these measures of particular importance.  As there is a lot being said about the implications for consumers, let’s consider some things that Canadian businesses should be thinking about:

  • Know your costs:  Too often, companies do not have a good understanding of the actual cost to deliver products and services, on a current, comprehensive, and complete basis.  Typical shortfalls include not recognizing all of the costs that should be included (such as overhead items or allocation of all labour costs) or not reflecting cost increases and other charges on an ongoing basis.  Not only does this provide a false sense of product margins, it also results in a poor basis for establishing prices.  The latter can be particularly destructive for companies, with each sale occurring at a price that is too low to support operations.
  • Identify supplier options:  Although companies might have longstanding supply and other relationships, it’s never been more important to expand the list.  Managing risk involves identifying a range of suppliers, including outside of the United States, to ensure that options can quickly be accessed, in the event that pricing or delivery terms become untenable.
  • Research market opportunities:  Tariffs can create business opportunities for Canadian companies, in situations where US goods become less price competitive.  Fulfilling market opportunities requires targeted research, and assuming that new business is no different than a company’s current customers is a recipe for disaster.  Take the time to fully understand what’s needed in order to generate success.
  • Secure necessary capital:  Business leaders don’t always remember that approaching new opportunities and generating growth require capital.  Reasons include the need to expand facilities, procure raw materials, increase distribution, hire staff, or conduct the previously mentioned research, often in advance of when sales proceeds are received.  In order to ensure a successful outcome, it’s critical to understand capital requirements, as well as the source, before approaching growth opportunities.
  • Monitor financial results:  As new business opportunities evolve, financial results must be monitored on a timely basis, to ensure that progress is on track.  In order to do so, a company must have a strong complement of fundamental systems, processes, and procedures in place, to ensure that good results and information are being generated.  This includes ensuring that the person in the senior finance role has the right qualifications, skills, and experience, particularly for a growth related company.

Putting these key areas into place generally takes longer than expected, so business leaders should be doing so now.  Advisors can be particularly helpful, including identifying market opportunities, action planning requirements, implementation options, access to partners, and tested solutions that can be fast-tracked, representing a competitive edge.  Feel free to contact us for more information during this important time in the Canadian economy.

Getting to Better Budgeting: 5 ways to up your budgeting game

Published by the Canadian Golf Superintendents Association in GreenMaster (Fall, 2017).

The very thought of budgeting can conjure up feelings of an abundance of effort for little in the way of outcomes.  Ask people how successful they are when it comes to meeting (or beating) their budget and many will say “not even close”.  Suggest that a budget should be prepared before getting started with a new fiscal year or venture and the response might be “we can’t predict the future, so why bother?”.  And when all else fails, there’s always the familiar excuse of “nobody looks at those things anyway”.  These viewpoints are more common than one would expect, but actually, they are far from accurate.  Why is this the case?

The simple reason is that budgeting is a learned skill, and practice makes it better.  When considered in this context, here is what the comments above actually mean:

What They Said Translation
“Not even close”

The budget wasn’t reasonable.

We didn’t pay enough attention to the budget once it was developed.

“We can’t predict the future, so why bother?” We don’t know enough about our organization to prepare a meaningful budget.
“Nobody looks at those things anyway” We don’t understand budgets.

Experienced advisors know these misconceptions all too well, and the only way to overcome the challenges of budgeting and improve outcomes is to take action.  This means implementing a sound budgeting process, upon which an organization can build over time.  Here’s how:

  • Assign the right resources: Those who are responsible for conducting the actual budget work should have relevant experience, including a professional accounting designation.  Since budgeting is a specialized area, in the event that an organization’s staff members have not previously conducted budget work, the necessary training and education should be provided in advance.  Advisors can also be helpful in this regard.
  • Have a game plan: Developing a budget doesn’t just happen, and it’s important to have an action plan that identifies all critical activities, timing, and responsibilities.  The budget should have a standard format, including an Income Statement, Balance Sheet, Cashflow Statement, as well as supporting schedules and assumptions that provide the rationale for how amounts were developed.
  • Engage the senior team in the process: A budget shouldn’t be developed in isolation, such as by an organization’s leader or the “Accounting Department”.  This approach can result in those on the senior team taking the view that the budget “doesn’t belong to us”.  In order to avoid this scenario, all members of the senior team should be involved, by way of developing the budget assumptions that pertain to their area, as well as review of drafts and finalization.  This approach gets everyone on-side, making the budget that of the organization and its team.
  • Draft, review, and revise: Budgets don’t typically come together on the first try, so it’s important to prepare a draft version, review and critique it as a team, and revise where required.  This process might take a few drafts, but it is rich in learning for everyone involved.
  • Implement and monitor over time: A budget only means something if it is formally implemented and monitored over the full period to which it pertains.  Common mistakes include developing a budget and either not formally implementing it (so people think it doesn’t matter) or failing to compare actual performance to budget on an ongoing basis.  Either scenario leads to poor outcomes.

The good news is that the work is in getting started and these efforts can be leveraged over time, through re-use and enhancement of what has already been put into place.  Starting now creates the opportunity to get on the path to making the process easier sooner.  What’s more, the good performance that can be generated will add some distance to your game.

NEWS: Executive Business Builder Program Now Available!

As the lead instructor, I’m pleased to announce that the Executive Business Builder Program is now available!

This program is designed to help business leaders build a future-ready company, including building value and best practices, through courses, mentorship, and access to a powerful network of inspirational, like-minded people.  Learn practical strategies for building a company that can generate solid performance and be positioned for transfer to someone else in the future.  Value doesn’t just happen, and leaders need to take tangible steps to enhance their company.

The first course, Strategic Business Planning, is already available, and additional courses are already in development.  Don’t miss out on this opportunity to move from business leader to business builder!

When Leaders Get it Wrong

As a business advisor, I’m always amazed by leaders who don’t act in the best interest of their own company.  It’s something that happens more frequently that one would expect, and examples of this non-productive behavior include:

  • Ignoring obvious problems
  • Hiring people who don’t have the skills and ability to do the job
  • Needing to be the “smartest person in the room”
  • Not being receptive to advice that could help them to be more successful

And the list goes on.  From my perspective, the most bizarre of these are the last two on the list.  Both tend to be related to ego and insecurity issues that end up taking precedence over the company at hand.  People who exhibit these behaviors miss the opportunity to build a better company, which, in turn, would reflect well on the leader.  A complete disconnect!

Consider the following alternatives, both of which lead to better outcomes:

  • Surrounding yourself with the smartest, most competent people is one of the best things that a leader can do.  Not only does this significantly raise the likelihood that a company will perform better (to the benefit of all involved), but it also provides a powerful opportunity for a transfer of knowledge.  A collaborative learning environment strengthens the senior team, as well as the leader.  In my own experience, the smartest leaders I have known have never been afraid to say “I don’t understand it”, while taking steps to do so.  Why is this important?  Because even the smartest, most accomplished people know that there is always more to learn, and they are never diminished by saying so (in fact, it makes them better leaders).
  • Experienced advisors bring a wealth of knowledge that can improve almost any situation.  Why would a leader not be receptive to such a powerful opportunity?  Not recognizing a good idea when they see it?  Ego?  Insecurity?  Thinking that the issue has already been resolved (when it hasn’t)?  Poor judgement?!  Whatever the reason, this lack of receptiveness will eventually catch up with the company, often at the worst of times.  Investors and financial partners screen for this tendency, and those who aren’t receptive to advice often don’t end up on the financing list.

I’ve long since had a theory that there are lots of business leaders who will opt out of what is in their own best interest, as well as in the best interest of their company.  Ironically, these people are the ones who tend to need the most help, not the least, and they might just have to learn this lesson the hard way.

NEWS: Strategic Business Planning Course Now Available!

I’m pleased to announce the launch of my new Strategic Business Planning Course, the first course in the new Executive Business Builder Program at The Knowledge Bureau.

It might be news to a lot of CEO’s and entrepreneurs that most business plans are not prepared very well.  Although a company’s management might find the plan useful, they tend to fall well short of what external parties, such as potential financial partners, require in order to make a financing or investment decision.  This course provides sound business planning guidelines for both internal and external use, putting leaders in a better position to pursue the necessary capital to support the next level of growth.

Getting it right involves developing a thorough and complete business model, strategy, and plan (including a financial forecast), as well as preparing to make the approach to potential financial partners.  Gain insight into a range of important areas, from the perspective of a former investor, including:

  • The key sections of a business plan and what should be included
  • What to consider when building a business model
  • How to identify and select a target market(s)
  • How to select and position products and services
  • Guidelines for developing a marketing strategy
  • Developing an organizational structure, including identifying key roles
  • Guidelines for preparing a financial forecast, including assumptions
  • The perspective of external parties, such as financial partners
  • Guidelines for approaching financial partners

Details and registration are available here.  Stay tuned for additional courses in the Executive Business Builder Program!

EVENTS: Speaking Tour (Distinguished Advisor Workshops)

Coming to a city near you!  Join us for the Distinguished Advisor Workshops in Vancouver (May 29th), Edmonton (May 30th), Calgary (May 31st), Winnipeg (June 1st), Toronto (June 5th), and Ottawa (June 6th).

Looking forward to sharing thoughts in the following important areas:

NEXT GENERATION CONTINUITY PLANNING

In this session, you will learn how to prepare your clients who are transitioning their businesses to the next generation of leaders and/or preparing their business for sale. Tax and financial advisors can be of significant help by guiding clients in the direction of formal business continuity planning

Learn how to address key issues your clients should be considering, including:

The transaction “knowledge gap”;

The opportunity to apply innovation to business continuity planning;

How to approach strategic business planning, and the succession transaction itself; and

How to address financial partner considerations.

Things to consider in finalizing the transaction.

The continuity of these companies could depend on your help: and, it’s your opportunity to differentiate your services from others.

BUILDING BUSINESS CONTINUITY PLANS

Every business needs a formal plan throughout its lifecycle, for focused decision making, as well as in preparation for its exit and/or transition.  This session will discuss the sound guidelines that business owners should use to develop such a plan and other value building considerations, including:

Guidelines for developing a well written business continuity plan;

Identifying and articulating your market opportunity;

The relationship between the business model, strategy, and plan;

Key planning components, including products/services, marketing strategy, and operations, and Management;

Guidelines for preparing a financial forecast for three to five years; and

An introduction to the Executive Business Builder Designation Program

Details and registration are located here.

As the lead instructor and author of four certificate courses in the Knowledge Bureau’s Master Financial Advisor (MFA) Designation Program in succession and business planning, and certificate courses in the new Executive Business Builder Designation Program, I look forward to delivering these sessions.  See you on the road!