Category Succession Planning

April 3, 2023 by Jenifer Bartman

MEDIA: CBC News Network Weekend Business Panel (April, 2023)

Pleased to join the CBC News Network Weekend Business Panel, alongside Mark Warner, Rubina Ahmed-Haq, and Hillary Johnstone, talking Federal Budget highlights and what’s next for the banking industry, in light of recent failures (also a good opportunity for common sense governance reminders). You can watch our segment here. Some comments on our discussion.

From a corporate perspective, one of the important areas in the Federal budget that family businesses should be focusing on is the intergenerational transfer provisions, in terms of succession. In short, this section addresses past tax related discrepancies that could make it more desirable for business owners to sell their shares to a third party, rather than intergenerational transfer, and identifies two transition approaches.

The issue of business succession is an important one, as many business owners have “overstayed” their time at the helm, with the pandemic resulting in additional delays. The reality is that the majority of small businesses lack a formal succession plan and qualified successors with the necessary funds are difficult to find. In addition, many small businesses have not kept up with marketplace competition and industry trends, which typically results in a declining customer base and value. Business owners don’t only need transition options, they also need to have this important issue brought to the forefront in a constructive manner, otherwise, the likely outcome will be windup or closure. The key message at this point is to get professional advice, in terms of business transition and preparation to do so, as this is best done years in advance. Reading Defusing the Family Business Time Bomb can be helpful to moving this important process along, including identifying steps to take, decisions to make, and the basis of advisor conversations.

The recent collapse of Silicon Valley Bank and weaknesses in others have raised a lot of questions about the stability of this sector, and although the Canadian banking system is not directly comparable to institutions in other countries, the news of recent weeks is an indication of how a ripple effect of concern can travel. A lot has been said about senior management and regulators, and although we do not know all of the details here, situations such as this are a good opportunity to be reminded of governance responsibilities, including the following:

Boards of Directors have an important role to play, beyond that of the basic governance responsibilities that include representing shareholders and providing oversight; these are givens.
Board members need to ask the difficult questions, including in terms of adherence to policies and key systems and practices that should be in place.
Risk management is a critical issue, especially in challenging times; the recent pronounced environmental shift in areas such as inflation, interest rates, and the capital markets are good examples. Communication with the Board should be enhanced during difficult times.
Board members with a significant level of experience and skill have the ability to add considerable value, especially in the face of challenge. In order for this to occur:
- Board members have to make the effort to do so, in a tangible and practical manner; and
- Management has to “park its ego” and be receptive to this type of advice. CEO’s who surround themselves with weak senior team and Board members are a red flag, to say the least.
Finally, Board members are not there to be friends with Management, to cheerlead, or provide only the sunny side of input; this does not fulfill the governance role, at its core, nor is it helpful, particularly in times of trouble. Board members who “look good on paper”, but prove to be ineffective in raising the tough questions when needed do little to fulfill their role.

When a prominent business fails, there are many questions to be asked. It is important to remember that the accountability conversation is not just one that involves Management and industry rules and regulations; governance also has a seat at the table.

Thank you for watching and see you again soon.

January 16, 2023 by Jenifer Bartman

MEDIA: CBC News Network Weekend Business Panel (January, 2023)

A new year, another appearance on the CBC News Network Weekend Business Panel; this time, alongside Dennis Mitchell, Christian Bravo, and Chris Glover, talking inflation rates, possible changes to mortgage guidelines, and business succession (of particular relevance for small business owners!). You can watch our segment here.

Some thoughts on our conversation.

The rate of inflation announced this week in the US indicates a continued decline over the past six months; what does this mean? It’s important to remember the need to step back and consider in context, as this allows trends to be identified, even if only on a preliminary basis. Although six months of inflation rate declines can be reasonably considered as a trend, it is important to recognize that the timeframe is short term in nature (less than one year), and that rates may vary slightly from month to month (real life isn’t always a straight line). Further, much of the most recent decline can be attributed to falling gas prices, so it will be important to monitor movement in this regard in the coming months.

Further, as the US is expected to reach its debt ceiling this week, it remains to be seen how Congress will address this issue in the coming months. Failure to raise the debt ceiling could result in confidence issues, which can lead to economic and financial risk. While business lives in the practical world of the direct impact of rising prices, a tight labour market, and ongoing supply chain challenges, politics can get lost in the theatre of partisanship, holdouts, and tradeoffs; stay tuned.

As interest rates continue to rise, Canada’s top banking regulator is considering tightening mortgage rules. Although it makes sense to manage risk in areas where households in situations of significant debt and mortgage amounts, a balance is needed to ensure that those who should reasonably qualify for a mortgage are able to do so. It is not helpful to create additional stress on the rental market, or to slow reasonable home sales in a manner that could also impact the construction market. Rules can sometimes have unintended consequences, so understanding the practical realities is important, prior to development and implementation.

And, finally, a recent (and familiar) report from the Canadian Federation of Independent Business indicates that 76% of owners plan to exit their businesses within 10 years. As a business advisor and author of Defusing the Family Business Time Bomb, this headline is not surprising, as reports over the last decade or more have had similar findings. A few things to think about on this topic of critical importance to business owners and Canada’s economy:

Unless a business leader has bought and sold several companies, they tend to have little experience in the areas of succession and transition.
These studies tend to find that only a small percentage (in the single digits) have a formal, written succession plan. While some have an “informal plan”, the majority of business owners tend to indicate that they do not have a succession plan.
For numerous reasons, succession planning should commence years in advance of the time of transition (a minimum of three to five years) and it is critical to demonstrate a track record of “good to great” financial performance (over years, not months). Keep in mind that companies that are able to generate a strong exit value (i.e., sales price) have a track record well in excess of the norm.
Qualified successors/acquirers with the necessary capital to undertake a transaction are limited, which makes business succession competitive. This is something that business owners tend to underestimate.

Advisors can help, and the sooner that business owners put a priority on succession planning, the better (a new year is a great time to start). Thanks for watching, and see you again soon.

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May 20, 2020 by Jenifer Bartman

Staring it Down: The Family Business Time Bomb Meets COVID-19

Blog Post published by Evelyn Jacks of Knowledge Bureau

We couldn’t have predicted the devastating economic effects of the pandemic on small businesses when we wrote the book, Defusing the Family Business Time Bomb. But if there was ever a time for families to address the issue of what to do next in guiding their business out of stormy waters, it’s now. This is the book to help you and your clients through it. Here’s how my co-author, Jenifer Bartman describes the opportunity:

“Remember all of those times when you thought (or your clients thought) that something that happens on the other side of the world can’t impact your company? The current COVID-19 crisis is a case in point that demonstrates that the exact opposite is true. While business leaders are challenged to manage their companies, determine if they qualify for relief programs, or simply survive, many are likely realizing that their systems, processes, and financial information need to be much stronger. Strategies to implement now and carry into the future are in demand and Defusing the Family Business Time Bomb was written to stare down challenges and win, even when we can’t always predict what the specific circumstances might be.”

It is clear the critical questions have intensified. What should owner-managers do now with the family business, mid-pandemic, and at a time when boomers are contemplating retirement? Will the business sell for the millions owners hope for, limp into bankruptcy, or just wind down? Worse still, will family relationships survive it all?

The answer lies in the family’s ability to embrace these unprecedented changes to re-imagine the purpose of the business beyond the pandemic, and then to drive that renewed purpose to build and transition a scalable company that has value beyond the original owner.

But at the same time, it is important to focus on the family relationships that will either suffer or thrive along the way. The reason? Even more damaging than the economic fallout of the pandemic is that the most promising and profitable company could perish when the investment in the family business is marred by family conflict.

While it is normal for a typical family business to be inundated with challenge and change, we all know these are not normal times. Never have so many potential threats been evident at the same time:

The disruption of the pandemic: While some “re-imagined” companies will enjoy a successful rebirth in these times, many may not survive. It is critical that a Real Wealth Management™ team of specialists be engaged to do a 360-degree analysis of the short and long term “what if” factors. The family needs to understand tax, legal and financial circumstances and plan proactively to get through them.
Demographic factors: aging Baby Boomer owners have a limited number of potential successors, and now a shorter runway to revamp valuations within the tepid economic growth cycle they find themselves in.
Disruption of key industries: new and complex business models require a rapid pivot. It’s all virtual all the time, and like the internet and computer revolution before that, working from home and conducting Zoom meetings will not fade away. This is the mainstream way to conduct business and it is here to stay. The unprecedented speed that digital/technological advancement has been forced upon the globe requires an enormous rebuild for many businesses. This could reduce expected valuations and make transition to new owners either irrelevant or much more costly.
Dramatic change in the global economy: There is no doubt that the recession Canada now finds itself in is making strategic planning more In good times, the big worry is the escalation of the cost of doing business and shrinking profit margins. In these bad times, the enemy is the absence of revenue. It requires the remaking and repositioning of the value of the company in completely new pursuit, as forecasts will likely be more important than historical trends. Astute professional help from experienced accounting and business valuation specialists can save exit expectations.
Uncertain tax rules: There is no doubt that the complex new 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 who want to scale up the business for the future. However, the various wage and rent subsidy programs have been complex. They have tax implications and more importantly, bring with them a higher probability of tax audit risk in multiple departments: GST/HST, payroll and personal/corporate income tax.
Typical family business problems: 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. Exhausted business owners who have been working overtime just to hang on and meet their obligations are likely not endearing themselves to the families that resent their efforts to save the business.

Whether you or your clients are long-time business owners getting ready to transition out, or a sudden new entrant to the “gig economy” due to pandemic-induced unemployment, the good news is that you are likely poised to grow and expand, once the dust settles. You will appreciate this book for its contemporary and practical advice on how to get the next phase write, from the ground floor up.

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, despite the current crisis.

I know I speak with my co-author, Jenifer as I say this: we wrote Defusing the Family Business Time Bomb to help prepare for the most explosive challenge in a generation. Specifically, the retirement of the Baby Boomers and transition of their companies to a new guard, who face pitfalls and opportunities of their own, most especially now. We hope you will order it, gift it to your business owner friends and clients, and start numerous new discussions about the bright economic future ahead, once we get past these storm clouds.

Jenifer Bartman, CPA, CA, CMC, MFA™, is the Founder and Principal of Jenifer Bartman Business Advisory Services, assisting companies in transition (early, financing, growth, and succession stages) with growth strategies, financing readiness, strategic/business planning, and executive coaching. Jenifer is well known for her venture capital and early stage financing expertise, having been an executive in the industry and an advisor to many young companies. She appears on the CBC News Network Weekend Business Panel. She tweets @JeniferInc.

Evelyn Jacks, MFA™, DFA-Tax Services Specialist™, is one of Canada’s most prolific financial authors, having penned over 50 books on personal tax and family wealth management, many of them bestsellers. A well-known tax and financial commentator, she has twice been named one of Canada’s Top 25 Women of Influence. Evelyn is also President of Knowledge Bureau, a national educational institute focused on professional development of tax and financial advisors. Follow her on twitter @evelynjacks, and here in Knowledge Bureau Report.

Copies may be reserved online, or by calling 1.866.953.4769.

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August 19, 2019 by Jenifer Bartman

Giving up on the 1-Yard Line: Finding triumph over mistakes that companies make

This article was published by CMC Canada in the Summer 2019 issue of Consult.

In my many years as a business advisor and venture capitalist, I have seen companies make a lot of mistakes. There have certainly been successes, but mistakes, unfortunately, are a lot more common. Some of the ones that are the most damaging are those that are analogous to “giving up on the 1-yard line”, where after a prolonged period of time of working, pushing forward, and focusing on their game, a company’s leadership throws up its collective hands and says, “I’m done”. Why is this so harmful?

First, this situation tends to occur when facing challenging tasks that are integral to the success of a company; examples include areas such as properly conducted business planning, implementation of fundamental systems and processes, and successfully attracting financial and strategic partners. Appropriately addressing these areas tends to take far more work than business leaders anticipate; they also represent initiatives that might be entirely new. As a result, the keen enthusiasm that is apparent when a project begins tends to fade to an attitude of “we don’t need to work this hard”.

Second, companies sometimes have difficulty focusing on priorities, as key areas tend to be far less glamorous that the “fun” aspects of being in business, such as designing a new logo, touring office space options, or chatting up prospective partners that the company has little potential of actually attracting. Days get filled with these activities, that are more about busy-ness and less about results, decreasing the amount of available time to focus on the real work that needs to get done. This is a hard lesson that business leaders tend to discover far too late, and can be as damaging as losing key customers or running out of money. Full stop.

A better approach is recognizing that advisors who have “been there” and “done that” are in a unique position to provide the important leverage that companies need, to ensure that they are focusing on the right things, conducting their work at a quality level, and not running out of steam. How can this be achieved?

Priorities are not always obvious. Amazing, but true. Business leaders can get so caught up in the challenges of running the company on a day-to-day basis, dealing with staff members, and responding to customer needs that they are unsure (or unaware) about the steps that should be taken to make meaningful progress on a corporate level and might lack the experience of what is required in order to do so. Advisors can play a key role by identifying and prioritizing task items and keeping the implementation process on track. All of these areas are common pitfalls and represent the difference between starting something and actually getting it done (activity does not equate to meaningful progress).
Experienced advisors are the “acid test”. Advisors with a strong experience and qualification base understand where important initiatives need to “get to”, such as what financial partners need to know in order to make a decision. Companies tend to take the view that “what we provide to them will be good enough”, failing to understand the woeful inadequacy of this approach. Using raising capital or financing as an example, experienced financial partners have typically reviewed more opportunities than they can count and operate in an environment of limited money and an investment mandate that guides selection. They very quickly slot opportunities into a category, and chances are, it won’t be the “yes” file. Experienced advisors have a skillset that is extremely valuable; one that can help a company put its best foot forward and anticipate what is required in order to get to a successful outcome. Be sure to probe an advisor’s qualifications to ensure that they are the right fit for the particular initiative at hand.
Utilize skill to get there, faster and better. Teams who spend the whole game running around on the field, for the sake of running around, don’t win very many games. Coaches of successful teams know how and when to utilize resources in a manner where they can make the best contribution, including recognizing that there are times when specialized help is needed. This is where an experienced advisor can play an important role, providing the necessary expertise to quarterback complicated plays and get to the endzone more quickly. Business leaders sometimes do not appreciate the value of resources with the right experience; this fact tends to get reinforced in times of poor advice, from those who are not qualified to help, or when receiving no assistance at all. A company might not recognize the weaknesses that result, but the external party that they are trying to impress likely does.

These lessons might seem relatively straightforward, but reality reflects something quite different, as fumbles and mishaps in all of these areas, and numerous others, are quite common. What can make a big difference is perspective; stepping back to see how far an initiative has come, the relatively short journey that remains, its level of priority, and what success requires. If business leaders did this more often, there would be far fewer companies walking off the field with only one yard left to go.

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March 28, 2019 by Jenifer Bartman

MEDIA: Appearance on Moolala (Sirius XM)

Pleased to appear on Moolala (Sirius XM radio), joining host Bruce Sellery to talk about my new book, Defusing the Family Business Time Bomb. You can listen to our chat here.

This discussion is a great reminder that what’s good for companies in general is also good for family businesses! Too often, family businesses tend to have the view that catering to what’s best or most convenient for the family is an acceptable priority (and sometimes, the main priority!). In our highly competitive, rapidly evolving, technology fueled world, this approach can be particularly dangerous. Consider the following realities:

Consumers favour flexibility and convenience, in terms of how they procure goods and services. With a world of options at their fingertips, consumers have never had more choices, and companies that do not perform well or fail to meet expectations are quickly replaced by more savvy competitors. Getting a customer back once they have been lost is difficult, if not impossible, in many cases.
An abundance of things that used to be done “manually” are now driven by technology, think shopping, logistics, communications, manufacturing, and even depositing a cheque. Companies who have not kept up with the technologies that impact their industry or have failed to invest in these areas are unlikely to have a future (they barely have a “present”). Family business leaders who consider succession to be as simple as handing over the keys to the next generation need to think again.
A well managed company leads to good outcomes, including financial performance, customer loyalty, and longterm employees; these are some of the building blocks of establishing a brand. When a company is guided by what is most convenient for itself, shuns the systems and processes that generate good performance, and fails to seek advice to bring valuable perspective and expertise, it is not in a position to establish a brand presence that represents meaningful value to a potential successor or acquirer down the road.

Think about what this means. When family businesses fail to operate in a manner that is based on fundamental business practices and the needs of the marketplace, they put the future of everyone involved at risk; this reality has never been more true. Business leaders must take action, now, to ensure viability over the longterm, to the benefit of the company and the family (and those in the Baby Boomer generation, who have led companies for a while and are now facing retirement are a particularly important group, when it comes to succession considerations).

Get started by reading Defusing the Family Business Time Bomb, helping business leaders face the most explosive challenge in a generation. Your business and your family’s wealth generation should have a future, right?

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March 25, 2019 by Jenifer Bartman

A World Away from Yesterday

This article was published by CMC Canada.

There was a time when it was a given that a family business would be passed from one generation to the next; in many cases, it was just a matter of time. Over the course of 20 or 30 years in business, things changed, but not at the pace or in the manner that has been the case over the past few years.

We have certainly seen the impact of demographics and technological disruption on business succession, but there’s also considerations that relate to changes in the global economy and the financial uncertainty that continues to evolve. Consider the following factors, in terms of their impact on both the current operations and future viability of family businesses:

Trade relations. Recent years have brought numerous trade developments, including tariffs, disputes, and negotiation of new agreements, such as the USMCA (to replace NAFTA). This agreement not only includes new clauses, it has also created uncertainty, given the lengthy negotiation timeframe and the fact that it is yet to be formally enacted. In addition, ongoing trade discussions between the US and China and the friction associated with the detainment of a Huawei executive have left many countries wondering what the outcome will be, along with uncertainty associated with Brexit, the European Union, and turmoil in Venezuela. This state of flux impacts critical areas such as business investment and growth strategies, as well as financial performance, when unexpected tariffs and trade bans come into play (the case of Canadian canola imports being halted by China is a recent example).

Ally uncertainty. For those of us who have been on this Earth for a while, there has been relative consistency in terms of who are considered to be global allies and those who are foes to be regarded with caution. In challenging times, it has been a given that countries such as Canada and the United States would work together with allies in Europe and the rest of the Commonwealth to protect interests and combat potential harm. In recent years, traditional alliances have become less certain, with US leadership effectively reducing its global profile and “making nice” with questionable regimes. Besides the obvious “headline” appeal, the reality is that economic circumstances tend to follow relationships, and when uncertainty occurs, it could translate into business risks, and sometimes, opportunities, if the situation is approached effectively. Regardless, companies are impacted by these developments, even if they occur in faraway places (think about the realities faced by farmers and everyone who counts them as customers, when Canadian canola shipments are turned away by China).

Financial matters. In addition to how trade, alliance, and global economic factors could impact a company, there are also matters closer to home that contribute to changing times. Consider areas such as increasing interest rates, changes in tax legislation, and the challenges associated with access to capital. Canadian businesses have seen significant tax changes in recent years, some proposed, some enacted. In addition to the real life implications, business leaders have had to seek specialized advice to understand areas such as income splitting and potential clawback of the small business deduction. Potential successors are challenged to procure the necessary capital in order to undertake a business transaction, in an investment and financing environment that has become increasingly competitive and complex, as financial partners also monitor global developments.

The bottom line is that a company must have the ability to demonstrate marketplace relevance well into the future; in the absence of doing so, there is no basis to achieve ongoing successful operations, making transition irrelevant. Leaders of tomorrow must be able to demonstrate a viable business model, strategy, and plan to make their time at the helm worthwhile, but also to secure the necessary capital to complete a succession transaction. Current and future family business leaders can (and should) take action now by reading Defusing the Family Business Time Bomb. A world of opportunity (and risk) awaits!

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February 19, 2019 by Jenifer Bartman

At the Speed of Fright (I Mean, Light)

This article was published by CMC Canada.

The pace at which our world is evolving is one of those things that has become so common, we don’t always take the time to think about its impact. Phones that are used to watch broadcast media, cars that don’t need gas or a driver to operate, personal “assistants” that can place orders on command, rockets that can essentially land themselves, mapping applications that make logistics a snap; these are phenomenal developments. While these technologies and many others have made our lives easier, they have also presented significant challenges to the business community. Consider the following:

Business model blow up. The manner in which companies make money has changed dramatically in many cases, which cuts to the very heart of business; this is easily illustrated by the retail industry. While stores used to be the primary shopping option, consumers now have access to a range of methods, including online, rapid delivery, subscription models, and mass media e-tailers. Consumers have, in fact, come to demand these options, leaving companies to struggle to meet the pace of change, with many finding themselves in a too little, too late situation, unable to survive. This disruption scenario is true in almost any industry.
Strategy break down. In order to migrate a company through significant change, a key requirement is having a strategy that is proactive, comprehensive, and relevant. These attributes are driven by having a thorough and timely understanding of the changes that are occurring in the external environment, including industry trends, technologies, and marketplace developments. Too often, business leaders focus primarily on what’s occurring inside of their company, with a “they need us” mentality when it comes to customers. This mindset is one that greatly jeopardizes the future of a company.
Resource reckoning. New business models utilize resources differently; examples include the need for fewer people, different skillsets, roles that are held by technology, and utilizing strategic partnerships. Each of these bring changes in workflow design, systems, processes, and costs (remember that costs directly impact pricing!). Companies that do not proactively pursue the need to change how they work tend to get left behind at the worst of times, when more savvy competitors have implemented these methods, making it impossible for others to catch up and compete; which leads to this last point.
Financial shortfall. Integral to a successful business is the ability to generate at least good financial performance (strong results are, of course, better), thereby creating the fuel to invest, grow, and sustain over the long term. When a company does not have the right business model, it isn’t in a position to build the appropriate strategies to utilize resources well and be competitive over the long term, which leads to poor financial results; it’s all connected. Companies in this situation lack market relevance and are, too often, left without a future. Think about what this means to a business leader who is depending on the transition of their company to someone else, as the basis to fund their retirement.

The reality is that many of the advancements that we live with today represent technologies that much of society could not have imagined even five years ago. What will the next five years bring? The next 10 years? As technological advancement continues to accelerate, even the next two to three years will be highly significant. Is your company ready to face this challenge?

Remember that challenge also brings opportunity, but only for those who are well positioned to approach it. Learn more about the profound impact of disruption in the external environment, as well as how to take control and benefit from it by reading Defusing the Family Business Time Bomb. The future of any company is based on its ability to continue to be relevant to the marketplace over the long term. In today’s world, this is anything but a given.

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February 11, 2019 by Jenifer Bartman

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

Pleased to have appeared on SET for Success on 680 CJOB with Richard Lannon discussing my new book, Defusing the Family Business Time Bomb. Since many business leaders expect that their company will be sold at some point in time, often to fund their retirement, it is critical to understand the many challenges that could stand in the way of this goal, some of which might be surprising. Business leaders tend to not fully appreciate potential problem areas, failing to realize just how high the likelihood is that their company will be impacted, putting their future plans at significant risk in the process. Some hold the view that they “have it all figured out” or “don’t need to address those issues”, bringing a false sense of security and trouble at the worst possible time. These scenarios are, unfortunately, all too familiar in the case of family business.

While it is typical for many family businesses to experience the “aches and pains” that are associated with members of a company having longstanding, personal relationships with one another (think conflict, role uncertainty, and the strife that comes with life developments such as divorce, illness, and death), there are other challenges that are just as important. The world in which we live includes a number of external factors that make these days like no other, including:

Demographic factors: aging Baby Boomer business owners have a limited number of potential successors. Do they know it?
Disruption of key industries: new and complex business models and rapid digital/technological advancement could reduce expected valuations and make transition to new owners either irrelevant or much more costly. Is the company of relevance to customers, now and in the future?
Dramatic change in the global economy: making strategic planning difficult, increasing competition, and escalating the cost of doing business, thereby shrinking profit margins. Can the company compete on a profitable basis?
Uncertain tax rules: new and complex tax changes, restrictions to family income sprinkling, and a 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 who want to scale up the business for the future. Is the company getting the right advice?

Take a moment and think about each of these significant developments. Any of these areas is a lot to deal with on its own, but when combined, these factors have the potential to stop a company in its tracks, making succession or sale of the business unattainable. Consider what the impact of this discovery could mean to a business leader, their retirement, the future of the company, and the family.

This book helps business leaders to understand the areas that need to be addressed, now, including practical guidelines for facilitating important conversations with key advisors. Doing so not only helps to improve how a company operates today, but can also address the issues of tomorrow, including succession, sale of business, strategic partnerships, and seeking investment capital. These areas are also of key relevance to entrepreneurs and potential successors, who face unique challenges of their own.

You can listen to our conversation here. Contact us to learn more about how we can help; your company, family, and peace of mind will be better for it.

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January 31, 2019 by Jenifer Bartman

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 2019Many 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.

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January 21, 2019 by Jenifer Bartman

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.

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