Of all the family businesses in Ponoka, 70 per cent of them won’t make it to the second generation — unless they have a succession plan in place, says Phil Foreman, wealth estate planning manager for Co-operators Insurance.
He presented some useful tips to members of the Ponoka and District Chamber of Commerce luncheon May 21. “Succession exists in all areas of our lives.”
Family businesses must take into account their personal and professional lives when setting a plan for their business.
“If you think retirement and death are optional events, you’re in the wrong room,” added Foreman.
Making it to a third generation family owner is even tougher — 90 per cent don’t make it that far. Despite the loss, family businesses employ 4.7 million full-time and 1.3 million part-time workers in Canada. “Without small businesses this country could not function.”
Succession planning is an important part of any small business just as having a will is important for a family. Life changes such as retirement need to be considered as well. Foreman suggests having a plan to grow a business is no different than having a plan to build a home.
“If you didn’t have a plan, what do you think it would look like?” asked Foreman. “Why would we do that with our business, or our lives?”
Retirement strategies are important to any business and he feels owners and family members should discuss those issues in an open forum. A legal will with a designated power of attorney will help save thousands of dollars and time in an owner’s untimely death.
“The most important thing you will do in you financial lives, family, business or investment in the next 12 months is get that will and the power of attorney done,” he stated.
Another important facet of a small business is creditor protection. Foremen used to think the protection was for if he could not afford to pay the bills but it really helps in the case of a serious lawsuit. He gave the example of either an owner or an employee killing a family in a motor vehicle collision, the father happens to be a nuclear physicist and because of the nature of his work the company gets sued for millions.
He suggests liability insurance would not be enough to cover a large sum that can sometimes happen. “They come after you for it and they haunt you for the rest of your life. You will pay.”
Family law and ownership is another issue that needs to be considered. If a business partner dies, then the new partner may be the spouse, or the widow may remarry.
“Do you want her next spouse as your business partner?” he asked.
Every small business needs to make important planning decisions if the owner wants to see growth and he suggests families and businesspeople need to take it into consideration.
“You have to know where you’re going. Even a hike has a beginning and an end,” he stated. “You need to stay the course, the plan helps.”