Business owners make their wealth through concentrated efforts. The key to successful transitions involves focusing that same energy on planning the next stage of life and putting their wealth to work through investments outside their own companies.
The problem is, most owners avoid thinking about their next stage, their businesses don't get sold properly, and they lose the wealth they spent their lives building.
"One business owner that we came across had no transition plan, no successor, a son in the business who did not have an interest in running it, and no estate plan at all," says Maria Milanetti, a partner at MarchFifteen, a consulting practice specializing in business transitions. "The owner was 70 years old, running a highly successful business, and utterly oblivious to the risks for his family's future wealth."
This scenario is all too common in Canada.
Too often, the only part of a business that can be salvaged are its assets, but not a great deal more, leaving the family in a precarious position. The economy also loses a company that could have continued under new leadership.
Why is this lack of transition such a common scenario for too many privately owned businesses?
"It's quite natural for founders and those running the business successfully to 'want to keep a good thing going' and to feel that they need to keep running the business themselves," Milanetti says. "Often they want to 'protect' others from this responsibility."
But their reluctance to share how they make decisions or influence stakeholders with their next generation leaders can have long-term negative effects. Milanetti acknowledges it can be difficult to start the conversation around transition or succession. She recommends asking the following three questions:
- Have you thought about the next chapter in your business, in the next five to seven years? This question should prod an owner to share the kind of company the next generation of leaders wants to build and retain in the longer term.
- How can we plan that future together? Suggest setting aside some time with a facilitator or business adviser and describe how critical conversations can be shared in a relaxed, reflective and safe situation. It makes it a safer process.
- What will the next chapter of your life look like? The emotional challenges of giving up control over a privately owned business and transitioning into a new role as “ex-entrepreneur” – whatever this new role may be – requires reflection about one’s identity and about other family members. This is not a natural state for most high-action owners. Dealing with this identity change can be very important to helping the transition to take place. However, this can be a tricky question as it starts to deal with the prickly topic of the business transition.
Many owners or founders are mindful that these transitions take time and that it isn't as easy to make changes as they start to deal with the aging process and its challenges. It's much easier to keep the Peter Pan complex of thinking that aging only happens to others rather than to plan the family's future wealth.
Peter Pan whispers that planning for life after the business means retirement, and that's for old people, not a dynamic business owner, no matter the biological age. That way of thinking can be disastrous for a family if the owner is forced to reduce his or her time at the business or stop altogether. It is better to address changes while everyone is healthy and has the time and energy.
"At every juncture, we recommend planning," Milanetti says. "That is planning for the mentoring of next generation leaders, for the transition between current leadership and successors and, most importantly, planning for the owner to be clear what will make their lives meaningful in their next chapter. These are not people who are used to doing nothing."
Planning is a bore compared with running a business but if owners want to fully benefit from their lives' work, they need to grit their teeth and start tackling those three simple questions.
Jacoline Loewen is director of business development of UBS Bank (Canada). She is also author of Money Magnet: How to Attract Investors to Your Business. You can follow her on Twitter @jacolineloewen.
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