You get up every morning from your alarm clock’s warning. Take the 8:15 into the city. There’s a whistle up above and people pushing.

As Bachman Turner Overdrive’s 1973 hit rings out; you have been takin’ care of business, every day and every way. But it’s not these famous lines which most relate to the topic of Business Succession Planning, those are contained in the chorus’ outro, in which Randy Bachman croons:

Take good care of my business,

When I’m away, every day.

If taking business succession planning tips from a 70’s rock star leaves you wanting for more, Cambridge LLP has come up with the following tips for business owners:

Tip #1 – Take Initiative Creating a Plan

The most important step in creating a successful succession plan for your business is not avoiding the topic. All too often, high-functioning, and successful business owners, due to their nature will avoid the topic of what will happen to their business once they are gone. This can arise due to feelings of doubt over the capability of successors, excluding one or more children from the plan, or the insecurity caused by considering their own demise.

This misstep is the leading cause of tumultuous business transitions upon the passing of an owner and can be easily avoided by tackling the problem head on.

Business succession planning often begins with a simple question at the outset. Do you wish for your business to be concluded on your death or, would you like your business to continue through multiple generations? Choosing one of these two options will be based on your specific circumstances.

Option A – Sell your business outside the family

A sale of the business is often the preferred option for business owners who do not have direct relatives or associates who can carry on the business. Therefore, their only option is to sell to a third party. In many cases, owners make the mistake of forcing the business into the hands of one child to the exclusion of other children.

Children who are not interested in the business because they have pursued their dream career end up not benefitting as much financially as the others who are chosen to carry on the business.  Some owners take a refreshing view that the business should be sold to an outside third party and their children can decide what they want to do with their share of the proceeds which might include starting their own business.

After all, just because a child has an MBA doesn’t mean they must take over your business. Sometimes, letting them find their own career allows them to maintain family harmony. Think about the optics of one child buying the business from the estate and they have to negotiate with other children-stakeholders in the estate.  Or worse, resentment is created among your children because you offered one child preferential terms to buy the business from the estate. 

In any event, a sale to a third party upon death is a nuanced process and one which must be carefully considered and planned for. Properly planning for a sale will require the assistance of professional advisors and carefully drafted plans.

Option B – Transfer your Business to a Family Member

If Option B is your preferred method, some different considerations for succession will come into play including; whether the transfer will be completed via; a gift of the shares of the corporation or a sale of the shares of the corporation. Most importantly, if there is a gift of shares, or a sale of shares at a discount, then how will you equalize with those children who are not involved in the transaction?

Just like a sale to a third party, a sale to a family member is an equally nuanced process and one which must be carefully considered and planned for. Properly planning for a sale will require the assistance of professional advisors and carefully drafted plans.

Tip #3 – Identify Key Personnel for Your Succession Plan

Once the topic of planning for the future is on your to do list, even more important than the plan itself is identifying the person who will execute it. Even the most well thought out business succession plan can fall apart with the wrong leadership. Your professional advisors such as your estate planning lawyer can help guide you in making the proper appointments. 

Another example is, do you have a child who you would like to take over the business but is not yet qualified or experienced to do so? In this situation an interim leader may be the appropriate solution. These factors must all be carefully weighed when creating your plan.

Tip #4 – Communicate with those Selected Individuals

Like any successful business venture, communication is vital to success. Business succession planning goes far beyond leaving behind rock solid plans for after you go. Communicating the steps of your plan with key individuals whether they be family members, partners, shareholders or employees is vital to executing your plan.

Communication with family is particularly important because of the differing interests of children who are involved and not involved in the business. In the absence of these discussions, conflicts may arise between children, which will affect the accomplishment of goals and aspirations set out by the owner of the business. Likewise, a decision between two family members who are involved in the business over who will be taking on the leadership role, can cause conflict if not properly addressed.

Speaking with professionals will help in facilitating and preparing you for these difficult discussions so that conflicts which may require creative solutions are settled before your passing.

Tip#5 – Formulate Your Plan

The Essential Components of a Plan

• Any successful business estate plan will include the following components
• Will planning;
• Life Insurance Planning;
• Family law planning;
• Tax Planning directed at the Owner, the Successor and the business entity;
• Non-traditional estate planning documents.

Draft your Estate Plan

Formulating an effective will plan begins with traditional estate planning documents. Speaking to an estate planning lawyer will help you take care of this task. They will inform you of the many options your have including a dual wills plan.

Make Arrangements to Ease Financial Burdens on the Business

Securing a life insurance policy is one of the best ways a business owner can help with continuity if one of its key members passes. One example of how a life insurance policy can help is in the event the business lacks the sufficient funds in the deceased’s estate pay tax or expenses in connection with the businesses shares or operation. This added burden may be terminal to the business. Life insurance is one strategy which protects the business.

Familiarize yourself with Tax Implications on Death

There will likely be a large income tax obligation associated with the transfer of your business to someone other than your spouse since your shares are deemed to have been be disposed of on death even though an actual sale may not yet have occurred. Funding this tax obligation is critical to the success of the business in the short-term. In order to maximize the value of the business you pass on, it is important to consider the corresponding tax implications. The best method of informing yourself is bringing in the appropriate professional help. That does not just mean, enlisting the advice of a person already on staff at your business, but rather seeking out a chartered accountant with experience in tax planning and the process of business succession. 

There are exemptions available to minimize the amount of tax payable on the passing of a business owner. Estate freezes are available to business owners in Ontario and serve to lock in the value and associated tax liability of an appreciating asset prior to death.

Make Use of Non-Traditional Estate Planning Documents

Shareholders Agreements

Used in instances where there are multiple shareholders in the business, a shareholders agreement lays out important aspects of the businesses transition after passing. 

This agreement lays out vital components such as; share ownership, the transfer or sale of shares, what happens on the death of a shareholder, what happen on the disability of a shareholder, how to deal with disputes between shareholders and how to deal with former life partners.

Family Contracts

These documents which include pre-nuptial agreements or matrimonial agreements can help protect your estate and minimize potential issues or claims. Running a business is a project, which can put added stresses on a relationship; it is prudent to plan to protect these assets in the event of a breakdown in the relationship.

Tip#6 – Pay Attention to Nuances Related to Assets and Evolving Concerns

Traditional Assets

Where possible ensure that the assets of the corporation are in the right place. It is prudent to organize which assets are being passed on during succession. This can be accomplished by using multiple corporations to hold real estate assets in a separate corporation from that which is carrying on the business.

By organizing these assets prior to death in an estate plan, the business owner can help effect a smoother transition.

Digital Assets

In today’s virtual world business owners must be cognizant of social media accounts, online credit card usage and other digital assets. For many this type of technology is unexplored territory in the context of estate planning. Creating an estate plan that accounts for proprietary digital assets in a company is something that must be considered when planning for the succession of your business.

Intellectual Property

Intellectual property is often the most valuable asset held by certain businesses. This is particularly true of inventors, artists and many others. For some business owners these unique projects can take on a multi-generational nature. It is appropriate to consider who would be the next most appropriate person to attempt to realize its value. Is there a member of the family who is an avid art collector? Is there another engineer in the family? Would a business partner be most qualified to continue on your work?

Making plans for how you would like to see your projects continued, capitalized on and by whom is a vital consideration in business succession planning.

Following these tips will ensure that you like Bachman Turner Overdrive will be remembered for always Takin’ Care of Business.