Selling a business is like a high-stakes juggling act. Lawyers and accountants shuffle numbers and cash out shares, divvying up slices of the pie. Money moves, ownership flips and control changes hands. Before long, the business re-emerges under new leadership.
And the founder? Flush with cash, the founder often takes on a new role: full-time wealth manager. But some soon realize that this job calls for a very different skill set than running a company—and the transition is not always seamless.
Samuel Vallières, private wealth manager at Desjardins Private Wealth Management in Montreal, explains how founders can spend decades building a business and then suddenly find themselves managing a completely different kind of enterprise: the family wealth.
“For the few who have been longtime investors, this transition may feel more natural. They already have some advisors and structure in place, some financial literacy,” he says. “But for most, it is uncharted territory.”
With Canada facing an enormous wave of business transfers over the next decade, founders need navigation tools more than ever. The Canadian Federation of Independent Business calls it a “succession tsunami,” with more than $2 trillion in business assets potentially changing hands in the next 10 years.
Founders often assume that the wealth that comes with an exit will bring automatic peace of mind and simplicity, when, in fact, it introduces new complexity.
“You’re basically asking someone to succeed in a totally different game, right?” says Quillan Quarrington, principal at Creaghan McConnell Gould Ltd. in Oakville, Ont. “It’s about patience and governance and delegation. Not the kind of instinct, speed or control they may be used to.”
The problems start with a lack of preparation. Sometimes this happens because a founder’s plan to leave the business to the kids doesn’t work out. Other times, there’s a long-standing belief that the family will never sell the business—until an unsolicited offer lands.
“Sometimes you sell just because you receive an offer that you can’t refuse,” says Annie Boivin, head of tax and estate planning at Samara, a multi-family office in Montreal. “When it’s sudden, I think that’s when it’s more difficult to change the role from the business owner—the real operating business owner—to a portfolio manager for the family.”
Ideally, preparation should start years before the liquidity event, says Vallières. That allows time to align the family, set governance in motion and prepare an investment and taxation strategy that optimizes outcomes and supports the family’s values.
But when these pieces aren’t in place, founders may run aground, not because they’re not smart enough but because the scale of the wealth means decision making requires rigour and support.
If they are not prepared for the liquidity event, sometimes they freeze for six months or a year.
Annie Boivin, Samara
“I had one client who pushed back on a lot of advisors and said, ‘Hey, I’m going to figure this thing out myself,’” says Quarrington. The client soon came back looking for advice on how to handle the huge sums associated with a massive liquidity event.
“It’s generational wealth. You’re not just investing in the market,” he adds.
Another trouble spot is choosing family members to take on key roles, says Vallières, especially if the training or commitment isn’t there.
Investing biases
When it comes to investing, familiarity bias causes problems, too. If the family created the wealth in real estate, he says, “they might be much more inclined to put a lot into asset classes that are real estate or closely linked to real estate. They may feel safer that way, but it’s not always optimal.”
Other times, the difficulty is that families do nothing, Boivin says.
“If they are not prepared for the liquidity event, sometimes they freeze for six months or a year. They just don’t know what to do because they never talked about it,” she says. Family meetings and conversations with professionals usually unblock this pathway, she adds.
Founders also sometimes pay another, more personal toll when shifting from builder to steward: They feel disoriented or experience a loss of identity if they’re unprepared or unsupported.
“For most of these founders, the business isn’t what they do, it’s who they are,” says Quarrington. “So selling it kind of gets rid of that scoreboard that defined their progress. So, from a human perspective, you have to reimagine your own purpose. What’s your new vision? And how do you define your own success?”
B.C.-based financial therapist and author Chantal Chapman (The Trauma of Money) says the emotional response is no surprise.
“When roles change, there’s a transitioning period for your nervous system. And so if something feels out of your control, that could be creating a disruption in the nervous system where your brain’s saying, ‘I’ve got to go into survival mode.’”
How to prepare
What does good preparation look like? Every family is different, of course, but Vallières suggests families construct three pillars to help them deal with generational wealth:
- Clarify their vision for the wealth;
- Identify the people and advisors they’ll work with inside and outside the family;
- Create a structure for family governance and wealth planning.
Governance can scale depending on the family’s needs, as long as it helps them communicate, resolve conflicts and make decisions, Vallières says. The method could be a family office, a family council, or just a family meeting, ideally one that is professionally facilitated.
Selling [the business] kind of gets rid of that scoreboard that defined their progress.
Quillan Quarrington, Creaghan McConnell Gould Ltd.
Some families may want to add structures such as a family constitution, which outlines family values. And an investment policy statement can govern how much money can be withdrawn in dividends annually—for instance, to ensure it aligns with the family’s wealth plans.
When governance and structure are lacking, the fallout might amount to just a bump in the road, but it can be much bigger. “It can erode fortunes much faster than expected when there’s no structure or diversification or oversight,” says Vallières.
Put family relationships first
To prevent a bump from causing major damage, Quarrington says it’s key not to allow family relationships or trust to be damaged. You can recover from a few bad investments, but a long-term lack of structure will take a toll and can erode financial and human capital quickly.
Ultimately, adjusting to the new role is a little like taking up a new sport, says Quarrington. You have to train new muscles to start a new winning streak.
“I think when things go really right, the founder really does treat the transition like a new venture, and is kind of a student again, of the governance and investing, and intergenerational leadership,” he adds. “Ideally, they get advisors who will push them just a little out of their comfort zone, or challenge their assumptions, and not just echo them. When they get their family aligned with a sense of vision and purpose, those are the success stories.”
Cindy McGlynn is a Toronto-based writer and editor who frequently writes about business, culture and the arts. In addition to holding communications roles at tech startups and writing for consumer and B2B publications, Cindy has edited two national magazines and served as a long-time columnist for the Toronto Star’s Eye Weekly magazine. She has been contributing to Canadian Family Offices for four years.
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