Simple Succession Planning with the Transition Model

15 Jul Simple Succession Planning with the Transition Model

There’s a big shift coming.

Half of Canadian first-generation businesses expect that the next generation will be taking the reins over the next five years. Yet only about one-third of Canadian family businesses have a formal succession plan in place.[1]

The road to that succession plan can be a rocky one. The older generation doesn’t want to pressure the younger to join the family business. The younger generation doesn’t want their parents to feel pushed aside. So no one discusses it. For years.

For family members who are able to start the conversation and clear the air, there is an opportunity to step in and help their family’s business make the shift.

The transition model of succession planning acknowledges that transitions are a natural part of any family business. The outcome, however, will depend on how well the family navigates the five stages of the transition.

These 5 stages are:

Preparation Stage

Something happens that triggers or motivates the business owner to be open and willing to make a change. These triggers can include:

• Environmental changes, such as a new law or regulation, a political change or an economic recession;
• Family changes, such as marriage or divorce, children or illness; or
• Temporal triggers, including the natural aging process and a rising awareness that you may want to retire one day.

Disengagement Stage

Next, other key stakeholders acknowledge that the current system isn’t working anymore and they are looking for change. However, everyone must be ready and willing to make a change in order for this stage to be effective. Otherwise, family members may find themselves addressing some of the problem areas in the short term and then reconsidering the changes a short time later. If you are working with an advisor, that advisor must take this opportunity to work with all stakeholders, not only the unhappy ones.

Exploration Stage

During this stage, family members consider a variety of options for the family business. It requires considering all aspects of the system, not just a few problematic areas. The options that work best will align with the values and mode of governance that brought the organization to this point. It will likely work best if you have a team work on this together.

The most important part of this stage is establishing a clear timetable. Stakeholders must understand how much time is allotted for exploration before a decision will be expected. Similarly, it is unnecessary to rush into a decision without fully exploring all the options.

Choice Stage

This stage can be the most challenging one. Everyone has expectations, hopes and dreams. Reaching a final decision can take those dreams away. Yet the group still needs to:

• Reach a decision;
• Compromise on the best possible outcome;
• Avoid prolonging the exploration stage as a means of avoiding the decision; and
• Grieve the lost alternatives.

Implementation Stage

Once the choice has been made, it’s important to move forward with it. Creating a timetable is a great place to start. It may be a good idea to offer financial incentives around implementing the change on schedule. As the change grows closer, it may be important to offer mentoring support to help support those moving into new roles.

Creating the best succession plan for your business comes only after each of these stages has been thoroughly examined. If you are experiencing difficulty, it can be helpful to work with an advisor who can more easily ask the hard questions that a family member may feel uncomfortable asking. Don’t let emotions and family tension get in the way; the priority must be doing what’s right for the business.

To learn more about succession planning for your family business, contact us.

[1]     PwC, “Family Business Survey 2021 – Canadian Insights: An approach for lasting family business success.”

Joel Rose

With over 35 years of experience, Joel Rose helps families – and their businesses – to prepare for the future. He offers guidance and support to help his clients create estate plans and succession plans that meet the needs of the whole family. Through his extensive professional and personal experience, Joel is known for his compassion and his ability to find a creative solution to meet each family’s needs.