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succession planning

"In the Middle Ages, it took hundreds of years to build a cathedral. Not many founders got to see the finished cathedral," says Patrick Bermingham, fourth-generation family business owner of Bermingham Foundation Solutions.

Mr. Bermingham, whose company is approaching its 120th anniversary, says his goal is to get his company to 200 years -- long past his time as owner. He believes that the ability to steer a business over the long term, past your time as founder, is necessary when running a family business.

When his father was 67 years old, an unforeseen financial crisis forced the succession. Patrick knew his father did not have the appetite to fight for the company's survival; in one moment, his father shook his hand and Patrick was put in charge.

"My father was the supreme leader, but after that handshake, he never questioned my decision making." Stepping into a precarious financial situation meant that Patrick had to make rapid decisions and get a plan for survival.

"I needed money. I bought a new suit from Harry Rosen. I got on a plane to Japan. I sold a patent. It enabled me to stabilize the business," he says.

Then he set his long-term plan which meant looking at the hard truths.

Patrick needed a family succession plan, but knew that his children were much too young to take over. He could also see the valuation was too low to sell the business. He eventually decided to transition the business to outside owners by allowing the employees to buy shares , and not to do succession planning for the next generation of the Bermingham family.

When it comes to the family finances, structuring existing money can be done several years before a sale of a business or any other significant liquidity event. Trusts can be structured more favourably in times of low interest rates and low valuations for company stock.

At the time of Bermingham's low valuation, when a sale is not possible, it may be suitable to transfer ownership in the family business to a trust at favourable terms. You can allow for a more tax effective transfer of ownership than during times of high interest rates or high stock valuation.

Patrick decided to do an estate freeze for his family. Then Patrick began the transition process by allowing employees to buy shares in the company. The company's debt-equity ratio was still too high though, and the company needed more investment capital. Again, Patrick brought in experts to help organize and manage a partnership with private equity.

Eventually, after four years, the company was bought back from the private equity firm. When it came time to sell to a world class, strategic corporation, a few years later, Mr. Bermingham said the company was polished from all the steps taken along the way. "The secret of transitioning your business is that it is a long term process. You hedge your bets and maximize your value by buying and selling and then buying back parts of the company. It is not something you do suddenly."

However, the most important first step to manage the financial dimension before a liquidity event is to figure out personal financial goals and to structure existing wealth to suit these financial goals. This may include the design of trust structures or just earmarking different parts of the financial assets for different financial goals.

The Bermingham family had philanthropic goals throughout the generations that they ran their family business which continue. In addition, Patrick set his personal goals with his family wealth.

His passion was to be a sculptor, he studied art as a student, and he has made it a grand reality when and he recently won an award to construct a massive sculptor for a public space. This massive edifice will attract people for many generations into the future, much like the cathedrals built in the Middle Ages but still visited and viewed today.

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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