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  • General Interest - Business

Risk Mitigation and the Family Enterprise

December 30, 2022

A family enterprise is any business or financial venture owned and/or operated by members of the same family, often spanning multiple generations. Findings from the Conference Board of Canada’s report on the Economic Impact of Family-Owned Enterprises in Canada shows the strong role that these businesses play in our economy:

  • Family-owned enterprises generate almost half of Canada’s private sector real gross domestic product (GDP), the equivalent of nearly $575 billion;
  • Family businesses account for 63% of Canadian private sector firms; and
  • They employ nearly 7 million people, representing 46.9% of private sector employment.

Family businesses bring their own unique set of challenges – and with these challenges, comes risk. Here we explore some of these issues and how families can best mitigate these risks.


The Most Common Risks with Family Enterprises

WealthCo Senior Planner, Jordan Tanner, has worked extensively with family-owned enterprises, and shares these insights on the most common risks he has observed.

An incapacitated leader

“The biggest and most blatant threat is when the leader of the family enterprises passes away unexpectedly or becomes incapacitated in some manner. If the business is large enough to have a robust management team, this risk is less pronounced than if the leader plays the role of chief cook and bottle washer, but even then it can be tremendously disruptive and put the organization in great peril.”

Family businesses may be more prone to this risk, as they may be less likely to have the formal governance and succession planning pieces in place that traditional businesses do.

“Business might be done more on the fly,” Tanner points out. “It may be less formalized and structured than it would be if there was an arms length management team in place.”

Lack of important documentation

Another common challenge that may materialize is the lack of a proper shareholders agreement among parents and their children.

“This can be risky, particularly if one of the children has shares, and then something happens to them and there is no agreement on how to direct those shares. The shares may be moved to their estate, which may not be in the best interest of the business. Having this agreement in place would be table stakes with other business models but is often overlooked in the family-run business.”

Poor succession planning

Poor succession planning is another substantial risk associated with family businesses, as the continued success and prosperity of the company often hinges on a timely and well-suited leadership transition. Without strong succession planning, family businesses tend to struggle in times of turnover as they lack a strategized plan for how to address the changes required. This means that not only do they face possible conflict and disruption, but also their competitive edge may suffer as a result of churn in senior management positions.

“There is a three-circle model that exists when discussing family-owned enterprises,” Tanner explains. “This model consists of three overlapping groups within the family business – family owners, family owner-employees, and non-family owner-employees. Some family members will play much more active roles in the family business, and some will play passive roles, but all must be considered.”

By keeping some family members and not others in the dark on matters around parental estate planning, this can lead to misunderstandings, resentment, and potentially costly estate litigation.


How Can Families Best Mitigate Their Risks?

When it comes to the family enterprise, proactive risk avoidance is key. It's important for all parties to be aware of potential problems and create a strategy that addresses those issues head-on.

“Building a process where you are working together as a family is paramount,” Tanner advises. “Plus, meeting with your advisory team regularly to assess the current state, plan for the future, and ensure that all existing risks are understood and being addressed.”

Elements of this review may include assessing what impact the loss of a key team member could have on the overall profitability of the organization, reviewing the shareholders agreement, and ensuring that everything is as tax-optimized as it can be.

“At least annually, there should be a complete review driven by your CPA firm. The firm can then bring in additional advisors as needed – this may include investment managers, insurance specialists, wealth advisors, lawyers. Even peripheral experts can be brought in where required – perhaps a business coach to assist second generation family members in areas where they could use some extra support, or a leadership coach.”

Another key strategy is to involve key family members early on and set them up for success with financial literacy education.

“It can be scary and daunting for the incoming generation who are faced with becoming the stewards of this wealth,” Tanner points out. “So the earlier you can get kids and grandkids into the mix, training them on financial literacy and making good investment decisions, being part of the insurance process, long-term estate planning, and tax planning processes, the better off everyone will be. I liken it to a financial airplane. If the pilot goes down, who else is seated on the plane that can help to facilitate a soft landing?”


Jordan Tanner is a Senior Advisor at WealthCo, who lives by the motto, “it’s not how much you make, it’s how much you keep.” With a career spanning two decades, Jordan uses insurance-based tax, estate, and retirement planning solutions for business owners, professionals, executives, and retirees. Jordan firmly believes that your professional advisory team should work together, not independently, in order to help you develop the most efficient tax, legal, and financial structures based on your unique requirements and goals – the same philosophy that is driving the Integrated Advisory Community.

The Integrated Advisory Community consists of a network of progressive CPA firms, along with best-in-class professional advisors, service, and product specialists, who work together to deliver an elevated and holistic client experience. One that optimizes both their personal and professional lives with an integrated financial strategy designed to help clients reach their goals.