Business Succession Planning by Norman
Who is going to take over your farm? The store? Your machine shop? The
You have worked hard. You have built up the business. Now you want to
slow down, semi-retire, maybe retire altogether.
How do you do it? Where do you start? What needs to be considered?
To most farmers, farming is a way of life. It is also a business. In
Huron County, farming is big business!
Most of the businesses in Huron County, whether farms or other types,
are family owned. For most families, the business represents the largest
Business succession planning is not an easy process. There are many
challenges. This is partly because there is a lot of emotion involved.
It is hard to be totally objective when it is your business and your
family. Hence, most people procrastinate - they put off the important
and necessary discussions on this topic.
For many business people, it is sometimes difficult to separate the
person from the business. They have become very attached to their
businesses. Most business people have invested extraordinary amounts of
time in their business.
The business person often wants to make sure that whoever takes over the
business will put in the same hours and keep the business on the same
track. But rarely does the successor see it that way. The next
generation often wants to have a life outside of the business and may
see opportunities to expand the business or take it in a different
You and your spouse need to talk about your retirement goals. Many of
you will have seen the commercial on TV where the husband has one set of
ideas for retirement and the wife has another.
When you retire, you are going to have to find something to do with your
time. What does your spouse think of you having more free time? Do you
have any hobbies?
You and your spouse need to have discussions about the transfer of the
business to the next owner. You also need to have discussions with your
family and perhaps your key non-family employees about your retirement
Business succession planning should begin several years before you
actually intend to retire. But if you plan to retire next year and you
have not yet begun to think about succession planning, start today!
It is better to make crucial decisions about succession planning while
you have some time to think about and consider your options. You will
have more options available. You will also be calmer and less inclined
to panic. The alternative of leaving the topic until you have a heart
attack or until the month before you want to retire only elevates your
stress level and will probably result in you making poorer decisions.
You want the change of ownership to be a smooth one for you, for the
next owner, for your employees and for your customers.
Most business people will want to utilize professional advisors when
considering succession planning. These advisors will include your
accountant, your lawyer and your financial planner. You may also need to
use the services of a business valuator, a realtor and a business
When thinking about someone taking over your business, there are several
broad topics to consider.
What is the time frame? How much longer do you want to continue running
your business? Do you want to retire outright? Or would you prefer to
ease out gradually?
What are your financial goals for retirement?
If your business is a farm, you likely presently live on the farm. Do
you intend to stay living on the farm after the transfer? Or will you be
living elsewhere? You will have the capital cost of buying a residence,
as well as the annual costs associated with it. Maybe you will want to
buy an RV and travel.
How much income will you and your spouse need?
Whatever your plans, you want to make sure that you and your spouse have
enough to live comfortably in your retirement years. It is a good idea
to discuss your goals with a financial planner.
How will you value your business?
Depending upon the nature and assets of your business, you are wise to
engage the assistance of a business valuator and a realtor to provide
you with a realistic value for your business. Once you know the value,
then you can decide on the terms for selling or transferring your
business. If anyone questions your asking price, you have an independent
appraisal to show them.
What are the tax implications?
When you sell your business, whether to a member of your family or to a
stranger, there will be tax implications. You need to ask your tax
advisor what these are. Usually there are various options available to
you, depending upon what you finally decide to do with your business.
While you should never let the minimizing of income tax be your sole
determining factor of what you decide to do, you at least want those
options in the back of your mind when you have your discussions about
the transfer of your business.
What objectives do you have for your business after you retire? Will
your successor be able to meet those objectives?
Who are the possible successors to take over your business?
There may be some family members who want the business kept in the
family. You need to consider if that is realistic.
Do you have some children who currently help out on the farm or other
business? Do those children want to continue with the business? Do you
really know? What about your children who are not involved in the
Are any of your children ready to take over the business? Do they have
the necessary training and skill sets to keep the business viable? How
do your children get along?
Is there an "heir apparent"? Why do you think that person is the one to
take over, as opposed to someone else? What do that person's siblings
think about that person taking over the business?
Does your successor have a feeling of entitlement? Or is your successor
willing to pay fair market value for your business? Do you want to sell
for the full market value? Or are you willing to sell for less?
You, as the parent, may make assumptions that are not accurate.
Sometimes the person you think wants to take over your business really
doesn't want to but is afraid to voice his or her true feelings.
Maybe your child's spouse does not want your child to take over the
business. Perhaps your child's spouse married into the family business
without fully understanding what that meant. Much like Princess Diana
when she married Prince Charles. And now your child's spouse sees the
opportunity for your child to get out of the business so that the two of
them can have what the spouse believes will be a better life together.
Is the marriage of your successor solid? Or is there a possibility that
the business may have to be sold in a few years to provide for the
equalization payment under Ontario's Family Law Act if your child and
spouse divorce? Maybe the topic of a marriage contract needs to be
discussed. But who is going to suggest that?
Is your plan fair to all concerned? That gets us into the whole
discussion about fair versus equal. They aren't necessarily the same
thing. Jill Falloon, of Manitoba's Department of Agriculture, has
written an excellent article entitled "Fair Versus Equal: What do
Parents Owe Their Children?" It can be found at http://ucanr.org/succession/fair-equal.doc.
While it speaks specifically about transferring the farm to the next
generation, the principles apply equally as well to other businesses.
Perhaps it would be better to consider a sale of the business to some of
Are the ones who take over the farm or other business prepared and able
to pay you enough so that you can meet your retirement financial goals?
I once had a client who had come up with what he thought was a brilliant
idea for his son to take over the farm. After I listened to him outline
his plan, I asked him how he and his wife were going to live for the
next 20 years in the style they wanted. It was obvious that they
couldn't if they followed his plan. I suggested he speak to his
accountant and financial planner.
Will your possible successor be able to manage the increased debt load
necessary to help you meet your financial retirement goals?
Is it realistic from a financial standpoint for one or more of your
family members to buy you out and take over your business? Or would it
be better to sell to a stranger? The last thing you want is for some of
your family to be struggling financially because of the buy out. It
would be better to sell your healthy business to a stranger than to see
the child who bought you out file for bankruptcy in a few years.
Are there going to be people disappointed in your choice of successor?
How are you going to handle such disappointment?
All of these topics require conversations - some of which will be
Often the best way to have these conversations is with the assistance of
a neutral third party - a mediator. Mediators are trained to help people
have difficult conversations with each other in an atmosphere of
Sometimes a business person will suggest that these conversations can be
conducted by the lawyer or the accountant for the business. But that is
not a good idea.
Firstly, not all of the family and other possible successors will see
the lawyer or accountant as neutral. Usually the lawyer and the
accountant have had more contact with one family member than with the
Secondly, your lawyer or accountant may be unable or unwilling to ask
the difficult questions because he or she is too close to the business
or the family.
Thirdly, at the end of the process the lawyer and the accountant still
want to have that business and family as clients. If conversations
really become heated, the client relationship with that professional
advisor might come to an end. The lawyer or the accountant will likely
keep that thought in the back of his or her mind. It could make the
professional advisor's task of facilitating the conversation an
Fourthly, during the process you may need legal, tax or other advice
from your professional advisors. If your usual advisor is chairing the
discussions, you will probably need to engage the services of an outside
accountant or lawyer. This person will be unfamiliar with your business
and, hence, may not be as well equipped to provide the expert advice as
your regular advisor would be.
Finally, by using someone who has no previous dealings or allegiance to
the business or any of the players involved in the conversation, you
will have someone who is totally neutral and objective.
There are often underlying issues that need to be explored. Perhaps
there are sensitive topics that are not discussed in your family but
need to be when talking about business succession planning. A mediator
is better able to ask the tough, delicate questions to generate the
Some family members are more powerful or vocal than other family
members. Mediators will set up the process so that everything that needs
to be said gets said. This will require some of the discussions to take
place in private and some to take place when everyone is present.
The mediator can have a calming influence on the discussions. Various
players - whether a family member or an employee - can display their
anger and sound off at the mediator in private without the venting
derailing the discussions among the whole group.
Business succession planning is a delicate task that often breeds
conflict. Family dynamics are a big factor. Sometimes the best - and
most realistic - solution to keep peace and harmony in your family is to
sell your business to a stranger. But then we come back to the emotional
While you will want to think about your successor and how he, she or
they will be able to carry on your business, you also must consider your
own welfare and what your future will look like.
It may take several meetings with the mediator before your business
succession plan is finalized.
Once your succession plan has been developed, your lawyer, accountant
and financial planner can then take over and prepare the necessary
documentation to implement the plan.
If you decide on your business succession plan several years before you
actually retire, periodically review it to make sure your plan still
matches with what you want to do.
Norman Pickell is a mediator and lawyer based in Goderich, Ontario. For
more information about the subject of this article, please visit
Norman's web site at