All in the family: odds stacked against firms without succession plan.

Since the age of 13, when Steve and Natalie Lessard began sweeping floors and filing papers at the family-run welding shop, it was assumed the torch would be passed and the siblings would inherit the business.

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The business was established in the family's Chelmsford garage in 1974. Their parents, Jean-Guy and Jocelyne, methodically built the business up to 17 employees and a 7,500-square-foot shop, fabricating customized metal structures for the mining industry or assembling portable steel bridges for forestry companies.

Now semi-retired and contemplating retirement, the couple is making preparations through their accountant to some day turn the business over to the kids and spend their golden years travelling.

Daughter Natalie, who taught her mom how to use the computerized accounting system, does all the bookkeeping, payroll, receivables and marketing, while Steve oversees the estimating, shop work and deals directly with customers.

Although there is nothing on paper, many of the day-to-day responsibilities have already been passed on to the kids.

The Lessards are practicing what many financial experts always preach. Plan ahead.

According to a 1999 Deloitte & Touche study, three-quarters of leaders within Canadian family-owned businesses plan to retire over the next 15 years, yet two-thirds had not even broached a succession-planning process.

It is a big reason why only 30 per cent of family-owned businesses survive into the second generation.

When organizations are faced with the sudden loss of key people through disaster, death or defection, without a well-designed succession plan, companies and their customers can be thrown into chaos and confusion.

Succession or transition planning remains a big topic for Norm Meunier, a financial advisor with RoyNat Inc. in Sudbury.

With about 80 per cent of businesses across Canada expected to change hands in the next 10 years, less than 10 per cent have prepared for it, Meunier says.

RoyNat has taken a pro-active approach in contacting their entrepreneur clients to prompt them to start thinking about formulating a transition plan for the future.

A good succession plan should include the ability to finance the entire transaction using a range of merchant banking or financing instruments, a good understanding of the human issues involved, financial statements dating back five years and projections of future growth, a marketing and industry analysis, as well as profiles of key managers and their qualifications for ownership.

Meunier says planning ensures a smooth transition and gives offspring or purchasers a better chance of success because it is planned and outlined.

A RoyNat study on succession planning says in Northern Ontario about 50 per cent of mid-market companies can expect to be sold by 2010 and 78 per cent by 2015.

"The whole goal of succession planning is if you don't plan, things will go wrong," adds accountant Geoffrey Fischer, a tax specialist with KPMG in Sudbury.

"Most successful generations want to build that legacy, but part of that process is can the son or daughter run it or do they have to bring professional management in. Can they mentor them into the position, can they get them trained?"

The success rate in passing the business from one generation to the next has not been good, says Fischer, also a member of the Canadian Association of Family Enterprises (CASE).

A recent CASE study reveals that 70 per cent of family businesses do not survive transition to the second generation, with 90 per cent not surviving to a third generation. About 95 per cent of family businesses do have a succession plan in place.

Implementing a process can provoke a discussion to address the tough questions in providing for heirs and heading off family disputes with unanticipated rivalries.

Tax issues vary depending on what the plan is to migrate the business to family or an existing management group, outright sell the company to a new party or effect an orderly shutdown.

"Or there may be a combination and that's where planning comes in," says Fischer. "Most people have to look inward because every situation is going to be unique. That's what makes planning dynamic."

Before the process begins, the parent(s) must analyse their family situation and business goals of the various groups, and that is where a combination of planners can prompt that type of face-to-face discussion.

"If the father retires and passes the keys over to son, and the business fails, not only are there significant tax implications, but there is financial loss."

Preparing a succession plan is a multi-faceted process involving accountants, lawyers, bankers and financial advisors.

"If we're going to be doing an estate freeze, lawyers have to be drafting agreements for asset transfers. You may have changes to wills and may have to have shareholder agreements if you're bringing family or non-family members into ownership. It all requires legal involvement.

By IAN ROSS 

Northern Ontario Business