From a business perspective, whether it’s a family business, a family farm business or any other kind, succession planning is not only smart, it’s a condition of survival. According to the Family Business Institute for example, after the leader of a family business exits the picture for whatever reason, 70 per cent of these enterprises fail — either because there was no succession plan in place, no effective successor ready to step in, or both.
We already know that the rate of formalized succession planning is low in family businesses and family farm businesses, but let’s take a look at the latest numbers outside of agriculture. The Canadian Federation of Independent Business (CFIB) pinpoints the overall rate at a mere nine per cent among business owners planning to exit within the next 10 years.
Similarly, major accounting firm Farm Business Canada puts the rate at “less than 10 per cent.” The rate does seem quite shocking, but for those who have studied the topic — and also in light of basic human nature — it’s really not much of a shock.
Among those who do not consider the rate very surprising is Dr. Albert James, assistant professor in the Rowe School of Business, faculty of management at Dalhousie University. James explains that succession seems to be delayed because it’s “not until an organization reaches a certain level of resources that (the leaders) start to feel they have enough slack resources to plan.”
James also does “not doubt that there is a bit of the human condition at play, the bit where you think you always have time to deal with inevitable events later.”
Like farmers with their complicated lives, the vast majority of business owners out there procrastinate. They assume time will always be on their side.
Often, they also assume that, somehow, their enterprise will continue to exist, if not thrive, after they are gone or turn over the reins, no matter whether planning is in place or not.
However, the reality is that if there is no effective plan in place, and no committed, suitable successors, this is likely only a pipe dream.
The cost of succession
As farmers know, of course, succession planning also takes time and energy — quite a bit of it.
It’s tough to get around to it when you have a million things to do to ensure your business is running smoothly. You also might not know where to start.
Then there are the potential emotional issues within the family that may arise once succession is brought up. Even the thought of these can be unpleasant and stressful.
So maybe the experts are right. It really isn’t a surprise that in the non-farm world of family business, succession is permanently stuck far down on the “to-do” list.
Sending the message
There are various parties out there across Canada that are trying to convince family business owners to start the journey toward formalized succession.
Admittedly, some are doing it in order to generate business for themselves. Still, overall, the buzz they create is good for the economy because, if nothing else, the economy does better when businesses stay in place and are strong.
So how does the message get through to non-farm business owners? Is it the same way as for farmers?
Again, it turns out there are both similarities and differences. One way is through the media — i.e. with articles just like this one. For his part however, Anthony Biro, operations manager at FBC, doesn’t think business owners take the succession advice presented by media outlets seriously.
He isn’t alone. Corinne Pohlmann, CFIB senior vice-president of national affairs, thinks that even with the amount of attention succession has been given by the media in recent years, “I’m not sure that the message is getting through, as the percentages (of formalized succession planning) have not changed much over the last decade.”
Or, is the problem that all this awareness-building just isn’t working.
In Bill Brushett’s view, so much has been written in the media about succession and the consequences of not having plans in place that awareness levels among family business owners must be high.
Brushett is president and CEO of the Oakville, Ont.-based national Canadian family business organization called Family Enterprise Xchange, or FEX. But again, he points out that because succession is complex, and because business owners are already super busy, awareness on its own isn’t often translated into action.
Media aside, there are many business organizations including FEX that are doing a lot to promote formalized planning. Before the pandemic hit, CFIB for example had started to do this “in a much bigger way,” says Pohlmann, by launching a new webpage (www.cfib-fcei.ca/en/succession) along with lots of free advice and resources.
Family Business Association-Atlantic (FBAA), based in Nova Scotia, is among the business organizations in Canada doing the most to promote formalized succession planning. Executive director Michelle LaVigne says it’s always been a core aim of her organization and adds that the Dalhousie University Family Business Centre has also offered a large amount of succession programming over the years.
FBAA’s 25 carefully selected volunteer advisors are core to its succession programming (and other programming) and LaVigne says formal succession planning is also stressed in all of her organization’s yearly events. At these events, FBAA regularly profiles members who have started and continue to work through the process. It’s also a key topic within FBAA’s Peer to Peer Groups. And recently, FBAA has also partnered with BDC (Business Development Bank of Canada) to deliver specific succession-focused events such as breakfast seminars. All this has resulted in the FBAA’s 120 members being “far more likely,” says LaVigne, to have formalized succession plans in place.
At FEX, succession planning is heavily woven throughout its programs, resource materials, learning opportunities, website and community conversations. “It is such an important issue in a family-owned business — for both the family and the business — that it is top-of-mind in all that we do,” says Brushett. “It is an issue that is explored from many points of view during the Family Enterprise Advisor certification program as well.”
In terms of other ways that the “need-for-succession-planning” message can be conveyed, LaVigne says, “I think some advisors or accountants are talking about it with the leader or leaders of the business,” but also adds that “some are not.”
Pohlmann is in the camp that believes that small business advisors have a strong role to play, and so is Biro. He reports that FBC staff continue to keep in “constant contact” with their members regarding succession planning and all other aspects of business planning.
“Like most things, repetitive dialogue is important to move business owners in this direction,” Biro explains. “The one thing that we have found that works in promoting succession planning is steady communication on the subject.”
A bit of pain helps
Biro adds that in an important way, business owners are just like everyone else. They respond to pain quicker than they do to pleasure. That means that when a family experiences a sudden death is a point when “some benefit” could be gained in going over what could happen “if succession planning isn’t properly in place.”
In the end, no matter if you own a farm business or another type of family business, Brushett and others note that the first step in transition planning is to have a family conversation about it. It may be that if you can take that first step, you can get the rest of the way.
In any case, no one can argue that there aren’t enough resources, or sources of encouragement out there on the topic of succession planning, anymore.