How to manage a successful family business (and keep everyone happy)
Successful owners of a family business may want to consider concentrating on these four areas to keep the family firm expanding and family get-togethers harmonious.
YOUR BUSINESS
WRITTEN BY DAVID SILVERBERG
June 17, 2024
If you’ve been following the headlines or streaming shows on intergenerational corporate empires, you’ll know that running a family business can be a fraught and sometimes challenging experience. The media makes the most out of extreme familial infighting, and the many entrepreneurs who co-own companies with siblings, parents or cousins may relate to some of the storylines.
Be transparent
Emotions run high in family businesses, so having a facilitator who can help work with owners on succession plans could be useful.
IMAGE: Veronica Park
Disclaimer: The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance. TD Wealth represents the products and services offered by TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company). TD Wealth Private Wealth Management represents the products and services available through TD Wealth Private Investment Advice (a division of TD Waterhouse Canada Inc.), TD Wealth Private Investment Counsel (offered by TD Waterhouse Private Investment Counsel Inc.), TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company). ®The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries.
Running a business with loved ones can be rewarding, but there’s no denying it: Satisfying the needs of the business and the family can be a complex task that requires an acute awareness of how family dynamics can enhance or damage a business.
“Every family is different, every family has different values,” says Pierre Létourneau, a Business Succession Advisor at TD Wealth, who has worked with numerous family businesses. “What helps in terms of the planning process is identifying those values for the different players.”
Whether you're running a family health practice or a multigenerational contracting firm with expansive operations, you might wonder how to keep all the interchangeable family and business gears working smoothly: How can you best manage a family company, which involves all the usual business-owning tasks, such as hiring, assessing risks and business expansion, as well as family challenges, such as rivalries, succession, appropriate compensation and more? Létourneau has a few ideas.
Disclaimer
Pierre Létourneau
Business Succession Advisor, TD Wealth
SOURCES
1 “Antonio Spizzirri and Matt Fullbrook, “The Impact of Family Control on the Share Price Performance of Large Canadian Publicly-Listed Firms (1998-2012),” David and Sharon Johnston Centre for Corporate Governance Innovation, Rotman School of Management, University of Toronto, accessed April 30, 2024, www.rotman.utoronto.ca/FacultyAndResearch/ResearchCentres/JohnstonCentre/Publications-and-surveys/FamilyBusinessCorporateGovernance/Family-Firm-Performance-Study-June-2013
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When you’ve built a business from the ground up there is a tendency to keep some details to yourself. It may not be intentional — you’re moving so quickly that you may not have time to articulate every idea you might have. But just as communication is critical for couples who enjoy long and happy marriages, it’s also key in family-run businesses.
“One of the major issues that I see within family businesses is poor information sharing between family members,” says Létourneau. “If you don’t have strong communication in your family business, certain expectations aren’t going to be met.”
Several areas tend to need clarity and communication, Létourneau explains. For instance, everyone must understand the company’s vision and mission if they’re all going to work toward the same goals. It can also be important for family members to understand their roles within the business.
In some cases, a family member who is involved in the business may think that family ties override company rules. This can get complicated if family members step outside policies and procedures other employees adhere to. Deeper conversations can also be necessary, especially around business succession planning.
From the outset, owners should consider asking some important questions, advises Létourneau, and keeping the answers in a clear and straightforward document so that everyone within the family can be on the same page. Some of those questions include:
Which values are important for your business?
Is it critical for the business legacy to outlive the original owner? Why or why not?
How involved will other family members become in running the business? Is their participation important for the owner?
What is the exact corporate structure and what kind of succession plan is in place?
The earlier this kind of plan can be confirmed, the less confusion — and potential acrimony — may crop up later on, says Létourneau.
When you’ve built a business from the ground up, there is a tendency to keep some details to yourself. It may not be intentional — you’re moving so quickly that you may not have time to articulate every idea you might have. But just as communication is critical for couples who enjoy long and happy marriages, it’s also key in family-run businesses.
“One of the major issues that I see within family businesses is poor information sharing between family members,” says Létourneau. “If you don’t have strong communication in your family business, certain expectations aren’t going to be met.”
Several areas tend to need clarity and communication, Létourneau explains. For instance, everyone must understand the company’s vision and mission if they’re all going to work toward the same goals. It can also be important for family members to understand their roles within the business.
Of course, business owners often have another family to consider: their long-serving staff. Things can go awry and trust in the business could falter if there’s any hint of nepotism involved in a hire or business decision. At the same time, if staff sense family tension,
you could sow confusion around the health of the business, which could impact
company morale.
To help with this challenge, it can be wise to ensure family members aren’t hired outright without the usual vetting process, Létourneau advises. You might also want to have family members gain experience elsewhere before they move up the company ranks.
“I remember having a client who ran a family business and his children first went out to develop their skills via another career,” Létourneau says. “Those children came back with valuable experience after deciding to join the business.”
Dealing with routine employee issues can also take on added complications when staff are family. “The owner may want to avoid coming down too hard on a family member but they also can’t be easy on that employee or everyone will notice that behaviour,” Létourneau says. “Owners really have to walk a fine line.”
With performance reviews, consider bringing in someone impartial from outside the company to evaluate both staff and family so that no one can be accused of any personal biases, he suggests.
If anything can derail a family business, it’s not having a succession plan. Leave children guessing about who might take over the business and you could have a stream-worthy drama on your hands, where everyone starts jockeying for position and ruining relationships in the process. At the same time, employees who feel uncertain about where the business is headed could jump ship rather than wait to see what happens.
Start this process early, so that no one is blindsided by any decision that affects their future with the business, Létourneau notes. Proactive owners will hold family meetings to talk about who might take over. Nothing should be assumed — there are many cases where family members who are in the business today don’t want to lead the company in the future. There are also situations where every sibling wants control.
An advisor can offer professional guidance with many of these scenarios. Moreover, Létourneau is part of a team of specialists at TD Wealth that provide support to advisors and clients in complex situations. “Emotions run high in family businesses, so having a facilitator who can help work with owners on succession plans could be useful,” Létourneau says. “These can be difficult conversations to have but they have to happen. Delaying or avoiding them altogether could result in more problems down the road.”
Think about the financial implications of a business transition, too. There are several strategies, including setting up family trusts, that could help mitigate the tax burden that can come with a business transfer. You may also want to take advantage of the Lifetime Capital Gains Exemption (LCGE), which could mitigate taxes on all or part of the profit you’ve earned from selling a business. In 2024, the exemption hovers just above $1 million per individual. (The 2024 Federal Budget proposed that the LCGE will rise to $1.25 million and indexation of the LCGE would resume in 2026.)
Thanks to advanced planning and the Lifetime Capital Gains Exemption, Létourneau says, he knows of one family of 13 who managed to save taxes on roughly $13 million of capital gains after the sale of their business. “That was very helpful for them, of course, with the sale of the business being around $50 million,” he says. “A large portion was still taxable but there was also a sizeable chunk they could shelter from taxation.”
Make employee relations a critical concern
Don’t wait to plan for the future
Which values are important for your business?
Is it critical for the business legacy to outlive the original owner? Why or why not?
How involved will other family members become in running the business? Is their participation important for the owner?
What is the exact corporate structure and what kind of succession plan is in place?
The earlier this kind of plan can be confirmed, the less confusion — and potential acrimony — may crop up later on, says Létourneau.
25%
How much publicly-held family
firms in Canada outperformed
the TSX over 15 years.¹
Find the right time and place to talk shop
Family business owners know this scenario all too well: A happy holiday dinner can quickly turn into a mundane meeting as soon as someone brings up business. “It’s important for family businesses to have boundaries for what they talk about outside the business,” Létourneau says. “And it cuts both ways. There should be boundaries about family matters brought up while at the business, too.”
There are exceptions to every rule, though. “During a family moment, a critical business issue may come up that can’t wait, and that’s fine to address it there, if there is a forum to do that,” he says. These discussions require tact and a gut instinct, he adds.
Ultimately, family businesses can be fulfilling, inspiring and enriching for everyone involved, as long as you’re mindful of the issues that can delay success. As Létourneau says, it’s best to deal with issues quickly and efficiently before they become problems. Seeing a financial advisor and talking about your business can be a great first step.
25%
How much publicly-held family firms in Canada outperformed the TSX (compound annual growth rate) over 15 years.¹
Source: David and Sharon Johnston Centre for Corporate Governance Innovation
Make employee relations a critical concern
Of course, business owners often have another family to consider: their long-serving staff. Things can go awry and trust in the business could falter if there’s any hint of nepotism involved in a hire or business decision. At the same time, if staff sense family tension, you could sow confusion around the health of the business, which could impact company morale.
To help with this challenge, it can be wise to ensure family members aren’t hired outright without the usual vetting process, Létourneau advises. You might also want to have family members gain experience elsewhere before they move up the company ranks.
“I remember having a client who ran a family business and his children first went out to develop their skills via another career,” Létourneau says. “Those children came back with valuable experience after deciding to join the business.”
Dealing with routine employee issues can also take on added complications when staff are family. “The owner may want to avoid coming down too hard on a family member but they also can’t be easy on that employee or everyone will notice that behaviour,” Létourneau says. “Owners really have to walk a fine line.”
With performance reviews, consider bringing in someone impartial from outside the company to evaluate both staff and family so that no one can be accused of any personal biases, he suggests.
If anything can derail a family business, it’s not having a succession plan. Leave children guessing about who might take over the business and you could have a stream-worthy drama on your hands, where everyone starts jockeying for position and ruining relationships in the process. At the same time, employees who feel uncertain about where the business is headed could jump ship rather than wait to see what happens.
Start this process early, so that no one is blindsided by any decision that affects their future with the business, Létourneau notes. Proactive owners will hold family meetings to talk about who might take over. Nothing should be assumed — there are many cases where family members who are in the business today don’t want to lead the company in the future. There are also situations where every sibling wants control.
Don’t wait to plan for the future
An advisor can offer professional guidance with many of these scenarios. Moreover, Létourneau is part of a team of specialists at TD Wealth that provide support to advisors and clients in complex situations. “Emotions run high in family businesses, so having a facilitator who can help work with owners on succession plans could be useful,” Létourneau says. “These can be difficult conversations to have but they have to happen. Delaying or avoiding them altogether could result in more problems down the road.”
Think about the financial implications of a business transition, too. There are several strategies, including setting up family trusts, that could help mitigate the tax burden that can come with a business transfer. You may also want to take advantage of the Lifetime Capital Gains Exemption (LCGE), which could mitigate taxes on all or part of the profit you’ve earned from selling a business. In 2024, the exemption hovers just above $1 million per individual. (The 2024 Federal Budget proposed that the LCGE will rise to $1.25 million and indexation of the LCGE would resume in 2026.)
Thanks to advanced planning and the Lifetime Capital Gains Exemption, Létourneau says, he knows of one family of 13 who managed to save taxes on roughly $13 million of capital gains after the sale of their business. “That was very helpful for them, of course, with the sale of the business being around $50 million,” he says. “A large portion was still taxable but there was also a sizeable chunk they could shelter
from taxation.”
Family business owners know this scenario all too well: A happy holiday dinner can quickly turn into a mundane meeting as soon as someone brings up business. “It’s important for family businesses to have boundaries for what they talk about outside the business,” Létourneau says. “And it cuts both ways. There should be boundaries about family matters brought up while at the business, too.”
There are exceptions to every rule, though. “During a family moment, a critical business issue may come up that can’t wait, and that’s fine to address it there, if there is a forum to do that,” he says. These discussions require tact and a gut instinct, he adds.
Ultimately, family businesses can be fulfilling, inspiring and enriching for everyone involved, as long as you’re mindful of the issues that can delay success. As Létourneau says, it’s best to deal with issues quickly and efficiently before they become problems. Seeing a financial advisor and talking about your business can be a great first step.
Find the right time and place to talk shop
Disclaimer: The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance. TD Wealth represents the products and services offered by TD Waterhouse Canada Inc., TD Waterhouse Private Investment Counsel Inc., TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company). TD Wealth Private Wealth Management represents the products and services available through TD Wealth Private Investment Advice (a division of TD Waterhouse Canada Inc.), TD Wealth Private Investment Counsel (offered by TD Waterhouse Private Investment Counsel Inc.), TD Wealth Private Banking (offered by The Toronto-Dominion Bank) and TD Wealth Private Trust (offered by The Canada Trust Company). ®The TD logo and other TD trademarks are the property of The Toronto-Dominion Bank or its subsidiaries.
Disclaimer
SOURCES
1 “Antonio Spizzirri and Matt Fullbrook, “The Impact of Family Control on the Share Price Performance of Large Canadian Publicly-Listed Firms (1998-2012),” David and Sharon Johnston Centre for Corporate Governance Innovation, Rotman School of Management, University of Toronto, accessed April 30, 2024, www.rotman.utoronto.ca/FacultyAndResearch/ResearchCentres/JohnstonCentre/Publications-and-surveys/FamilyBusinessCorporateGovernance/Family-Firm-Performance-Study-June-2013
In some cases, a family member who is involved in the business may think that family ties override company rules. This can get complicated if family members step outside the policies and procedures other employees adhere to. Deeper conversations can also be necessary, especially around business succession planning.
From the outset, owners should consider asking some important questions, advises Létourneau, and keeping the answers in a clear and straightforward document so that everyone within the family can be on the same page. Some of those questions may include:
In some cases, a family member who is involved in the business may think that family ties override company rules. This can get complicated if family members step outside policies and procedures other employees adhere to. Deeper conversations can also be necessary, especially around business succession planning.
From the outset, owners should consider asking some important questions, advises Létourneau, and keep the answers in a clear and straightforward document so that everyone within the family can be on the same page. Some of those questions include:
● Which values are important for your business?
● Is it critical for the business legacy to outlive the original owner? Why or why not?
● How involved will other family members become in running the business? Is their participation important for the owner?
● What is the exact corporate structure and what kind of succession plan is in place?
The earlier this kind of plan can be confirmed, the less confusion — and potential acrimony — may crop up later on, says Létourneau.