If you’re a family business owner, chances are you believe your family will continue to control the business into the next generation. Unfortunately, family succession planning statistics undermine this belief. According to the Family Business Institute, only about 30 per cent of family and businesses survive into the second generation and 12 per cent are still viable into the third generation.\nAmong the reasons that family businesses don’t survive: a lack of succession planning, a lack of a logical successor, and, the fact that the business can’t escape its owner. \nBusiness owners avoid succession planning for many different reasons, including being too caught up in present-day business issues, subconsciously wanting to avoid thinking about the fact they won’t be running the business forever, and knowing how complex business succession planning is and not knowing where to begin. For family-owned or controlled businesses, succession planning also often introduces deeply emotional personal issues.\nDaniel Hershcovis (CPA, CA), partner at Calgary-based 1917 Chartered Professional Accountants, recalls a recent conversation he had with a client—the owner of a highly successful construction company. At 65, he was still heavily involved in the business, and after years of pressure from his wife to get out of the business—because she was afraid he’d “drop dead” and she’d be left to deal with the company—he booked a meeting to discuss his options. \nWhen Hershcovis mentioned handing the keys over to someone else, his client remarked, “Has anyone ever told you that selling your business feels, as I would imagine, like getting diagnosed with a terminal illness?” The client went on to explain that after 40 years of building his business, he felt like he was selling a piece of himself: his identity. \nTHE IMPORTANCE OF BUSINESS SUCCESSION PLANNING\nThe stakes are high: Businesses working without a succession plan can invite disruption, uncertainty, conflict, and endanger future competiveness. In a series of documents published in 2013, Deloitte warned warned that an unprepared successor, or even a competent management team involved in a poorly managed transition, can result in significant loss in value. \nIf you want your business’ intrinsic value to remain intact, Riaz Mohamed (CPA, CA), partner at Calgary-based MMCA Associates, recommends that succession planning should commence a minimum of 10 years in advance of the transition, given the intricacy of family dynamics and required mentorship. “From an estate perspective, the sale of a strong business will be more beneficial than a transfer of a business that is undesirable.” \nSuccession planning is a multi-disciplinary planning process and key advisors such as a CPA and lawyer should make up your advisory board. A CPA can add value when it comes to the financial plan, determining the tax implications of the business transition and helping to advise on strategies to reduce or eliminate estate and income taxes.\nWHEN THERE’S NO LOGICAL SUCCESSOR\nThe planning process may also reveal that selling the business—rather than maintaining a successive ownership—is the best option for your business. \nIn such a case, proper accounting records are essential to meet the demands of future buyers and investors. A clean and audited balance sheet, reviewed and audited by an independent CPA firm, in addition to other financial statements, will be a minimum requirement.\nThe federal government also has requirements when it comes to the sale of your business. Depending on its structure, a change in ownership could trigger a legal name change or require the registration of a new Business Number (BN) and CRA account. Additionally, owners may have a recapture or a terminal loss of capital cost allowance (CCA) on the sale of business assets. A CPA can ensure that you and your business remain compliant with such regulations.\n“As a CPA, we meet with our clients regularly, and build a trust relationship over time,” says Hershcovis. “This relationship, combined with our knowledge of a client’s finances, puts us in the unique position to identify planning opportunities.” \nKEEP THE CONVERSATION GOING\nAny other factors to consider when engaging in succession planning? Post a comment below.\nDisclaimer\nThe views and opinions expressed in this article are those of the interview subjects and do not necessarily reflect that of CPA Canada.