The business transfer process can often pose some major intergenerational challenges that can compromise its success.
Generally, transferors and transferees are not from the same generation and have different values and ways of doing things. Being aware of these differences and setting up communication and governance mechanisms can help bridge the intergenerational gap.
This is a key issue, studies have shown that there is a wide gap between people born before 1965 (traditionalists and baby-boomers, who are on the verge of disposing of their business) and those born after (generation X and Y).
Traditionalists and baby-boomers tend to have a Cartesian management style and consider work as a principal value. Gen Xers and Gen Yers have a more human management style and attach more importance to the work-personal life balance.
For them, work is but one of many components, it’s a source of knowledge. The value of work is not measured in how many hours they put in, as is the case of the previous generation, but as a function of their contribution to the business.
Additionally, authority doesn’t impress Gen Xers and Gen Yers as it did their parents. They’ve been used team work from a young age and prefer group management and decision-making. It’s been noted that, on average, three transferees take over from a single transferor.
The previous generations, on the other hand, tend to work in isolation, more likely to call on external professionals for advice.
The gap is so wide that, for the first time in Québec, the generational influence is stronger than the heredity influence, that is, that Gen Xers and Gen Yers are more influenced by their own generation’s values and behaviours than those of their parents.
This, understandably, leads to a certain degree of disappointment with entrepreneur parents who’d like their children to be more like they are. It can also lead to considerable misunderstanding on both sides and create tension.
A three-step approach
Preparing a succession plan is a key step to anticipate ways of smoothing the generational differences and ensuring that transferors and transferees have a common vision.
A succession plan, which should cover a span of at least five years to completion, helps prepare the transfer and covers various transfer issues: financial, tax, legal, strategic and generational, among others.
Our experts work in intervention groups composed of a wide range of specialists who can analyze these issues and recommend solutions as part of an integrated approach.
We propose a three-step approach for the generational issues:
- Make the transferor, transferee(s) and employees aware of generational differences during more focussed presentations and meetings.
- Pinpoint the risks of intergenerational differences and the more sensitive areas to focus on, in terms of management, finance, human resources, business development and company activities.
- Determine the required actions to bridge the generational gaps.
For example, consider a baby-boomer transferor who’s always decided everything on his own and doesn’t discuss things with those around him. We’ll help him set up communication and governance practices (by creating a management committee and a board of directors, among others) that are better suited to the values and ways of doing things of the Gen Xers and Gen Yers who’ll be taking over.
We’ll also outline everyone’s responsibilities so that the transferor, transferees and key employees can each have their say and play a role in line with their skills. If necessary, we’ll set up development plans to better equip the transferees, which helps to reassure the transferor.
Here’s an important hint: as a business owner in the process of a transfer, focus on “how’s it going?” rather than “how much is it worth?”, in other words, on personal well-being and engagement rather than the financial considerations.
Reassuring the transferor
Right from the start, our team ensures that it talks with the transferor to pinpoint the main concerns regarding the transfer process and proposes a number of solutions in the transfer plan. Generally, the best way to reassure the transferor is to use an approach where responsibilities and ownership are gradually transferred.
These are the five areas where transferors generally show the greatest resistance:
- Entrepreneurial mourning, the feeling of losing everything and getting old. With a progressive transfer, the owner will continue to feel useful and the transition to retirement will be easier.
- Their uncertainty about the successors’ abilities. One solution is to evaluate the successors’ abilities and prepare a development plan to offset any entrepreneurial weaknesses.
- Their uncertainty about the project’s financial feasibility. Will the successors be able to ensure the business’s profitability and assume new debt to pay the transferor?
- Concerns about the successors’ borrowing capacity. Will they be able to get the necessary financing for the transaction?
- Tax considerations regarding the ownership transfer. Will the transferor be entitled to the capital gain exemption?