Benjamin Franklin once famously said, "By failing to prepare, you are preparing to fail." In the case of family businesses, succession and retirement planning is a pressing concern with only one in four families having a business succession plan in place that all family members agree to.
That's one of the findings of a study out today by Nicola Wealth Management, a midsize private financial planning and investment counsel firm in Vancouver catering to high net worth business owners, aiming to better understand the current state of readiness of family businesses with regard to succession.
"About 90% of all businesses in Canada are family-operated," said David Sung, President of Nicola Wealth Management. "The implications of senior family business owners not having a succession strategy can't be stressed enough.
"With family businesses, succession can be especially complicated because of the relationships and emotions involved - and because most people are not that comfortable discussing topics such as aging, death, and their financial affairs. Perhaps this is why more than 60% of family-owned businesses don't survive the transition from founder to second generation."
The majority of family businesses (67%) ranked succession and retirement planning as their number one internal business concern.
Three quarters of respondents believe transition to the next generation will happen within the next five years. Despite this, however, less than half have a shared family vision for the future of the business.
Just over one third (36%) clearly understood who will own the family's assets and/or business in the future.
50% of the elder generation has determined how much money needs to be set aside to fund their retirement, yet only 41% have actually started saving that money outside the family business.
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When it comes to working in the family business, challenges for future generations include resolving family conflict (59%), strategic direction (58%), training future owners (54%), roles and responsibilities (54%), how decisions will be made (49%), setting clear expectations (46%), exit strategy and liquidity (43.5%), and competitive pressure (33%).
NWM collected 75 paper-based surveys at the "Fire Proofing Your Family Business" event in Vancouver on Nov. 14 with keynote presenter David C. Bentall. A convenience sample survey method was used; if the survey were conducted using a random sample of high net worth individuals the findings would be accurate to within +/-11%.