There’s a show on TV called Succession. Said to be based on the Murdoch family, it focuses on a highly successful businessman nearing the end of his working life. He toys with his four adult children as they jockey for the position of heir to his global business empire. While it makes for great, drama packed TV, we don’t recommend it as a healthy or viable succession plan.
This 2018 Family Business Survey showed that 60 percent of Australian business owners plan to pass the business to a family member. But with only 17 percent having a formal succession plan in place, it’s clear we need to talk about family owned business succession planning.
What is a family business succession plan?
Succession planning is deciding who will take over the family business when you’re ready to retire or when you pass away. It’s the smooth transition of leadership and power to the next generation while also making sure the business you’ve worked so hard to build thrives in the hands of your children or grandchildren.
While we’ve already discussed effective succession planning for small business, passing the reins of a family owned business has some additional considerations. With a family business, emotions and perhaps even family tensions may come to the forefront.
Family business succession involves not only the transfer of ownership but the transfer of management to the next generation.
The transfer of the capital interest in the business. That may be shares, partnership interest or as the beneficiaries of a trust. Owners do not automatically run a business.
The transfer of leadership and responsibility for the daily management and running of the business.
Why does my family business need a succession plan?
There’s an old Chinese proverb that says, 'Wealth never survives three generations’.
Essentially, the first generation makes the money, the second spends it, and the third is left with nothing more than stories of their parent’s fabulous lives. In fact, worldwide statistics show 70 percent of families are no longer wealthy by the second generation with 90 percent having lost their wealth by the third.
Succession planning is a process that takes time to develop. It may be something you think about in terms of ‘one day the kids will take over’ or ‘when we retire we’ll let so-and-so run the show’. You also need to consider that the larger and more successful your business, the more planning it will need for a successful transition. Some experts suggest you need at least ten years to plan for succession.
Choose a successor
Think about who is best to take over the family business. Be sure to make decisions based on what’s best for your business. This isn’t the time to choose your favourite (don’t look at us like that, you know you have one), or the eldest or the family member who thinks they’re the rightful heir. You need to ensure your successor has the skills to continue managing and building the business and, perhaps most importantly, that they want the job. This is a great time to reflect on your core values as a business and business owner. Who shares these values? Who do you think will live to the values and keep them alive?
Bring them into the business sooner rather than later
The idea of taking over a family business is quite different to the reality. This is why bringing in family members early, so they can learn the ropes and decide if it’s right for them, serves the family and the business.
It’s especially important if the business has non-family employees as whispers of nepotism can undermine a business on many levels.
Younger generations may not be keen to run the family business
The statistics consistently show that younger generations are less inclined to want to run the family business. With education, opportunities and job diversity on offer, it’s easy to see why working alongside mum and dad, or nanna and pop, may not seem like a dream come true for the young people. We’d hate for you to place all your eggs in one basket assuming your children will take over and then this plan falls through at the last minute.
Is family business succession right for my business?
Having a succession plan in place is a smart choice, regardless of who will be running the business once your reign is at an end. And while you may want to hand your business to the next generation, are they equipped to run it? Or do they even want to?
Family members may have other dreams and plans for their future. Having grown up in the business, they may want to run as fast as they can in the opposite direction.
There’s also the very real possibility that none of your family are capable of running the business. As much as you may not want to admit it, they may lack the skills required to successfully steward your business into the future. At this point, you might have to look outside the family.
Regardless of who will ultimately take over your business, it’s important you have an effective and achievable succession plan in place and that all the key players understand exactly what will happen, how and when.
It’s also just as crucial to speak to the professionals so, if you have any questions about developing a family business succession plan, please contact your localKelly+Partners officetoday, set up a discovery session or give us a call on 1300 932 584. You can also request a call back at a time that suits you.
Already a Kelly+Partners client? Get in touch with your client director to chat through your family business options!