Preparing the next generation to preserve the business assets and legacy

As older business owners look to transition ownership to the next generation, they confront vital questions, says Roxana Colquhoun, co-principal of HNW Services Inc., a Vancouver-based family office advisory firm serving entrepreneurial families.

“Questions such as, is the next generation ready to take over, both in terms of skills and desire? And what role, if any, should the founding generation continue to play?” she explains. “The challenges of succession planning are not just financial but also emotional, as it involves preparing both the family and the legacy assets for significant changes.”

Family office advisory firms can help family enterprises formalize governance to improve decision-making, manage risk and streamline operations through generational shifts. The firm can also help with conflict resolution when required.

“Every family is unique, but there are common challenges and solutions. Our role is to guide our clients through this complex process and establish the ingredients for success, based on our experience with various types of families and businesses,” says Neil Colquhoun, HNW’s other co-principal.

“Initial challenges involve not only identifying which family members are capable of carrying on the family-owned enterprise but also differentiating between management and shareholder roles (whether passive or active) and determining compensation,” he says. “Compensation issues can cause strife within the family, and as impartial advisers, we help set realistic expectations and ensure solutions serve both business and family harmony .”

Another important role for the firm is support the next generation’s development of the necessary financial knowledge to manage post-transition wealth. Businesses in that stage are the prime client group for HNW Services.

“They are still family enterprises, but now they have holding companies with investments, trust structures, maybe a real estate portfolio and other assets,” says Mr. Colquhoun. “Wealth preservation through generations is no easy feat – it demands new expertise and strategies to ensure that wealth is protected and grown, rather than diminished.

“The wealth-creating generation holds tremendous tribal knowledge they need to impart onto the stewardship generation – but they often struggle to make that handoff,” he adds. “The classic dilemma of ‘working in the business’ versus ‘working on the business’ becomes apparent very quickly, especially after a liquidity event.”

A holistic approach is required for this wealth management phase of the family enterprise, says Ms. Colquhoun. “We provide families with a comprehensive approach that integrates transparent communication, estate and investment planning, financial reporting, philanthropy and risk mitigation. This positions a family on a solid framework designed to bridge gaps in values and objectives and ensure the goals of each individual family member align with the long-term family vision and goals.

“Many family offices now offer leadership training and mentorship to better prepare future leaders,” Ms. Colquhoun says.

“Problems can occur when the next generation doesn’t fully understand what vision the older owners have for the future,” Mr. Colquhoun adds. “Our role is often to facilitate family meetings to help ensure everyone knows the lay of the land and to identify gaps in creating alignment. When all members understand and support the vision, transitions are smoother and success is far more likely.”

Advertising feature produced by Randall Anthony Communications. The Globe’s editorial department was not involved.