Owning and managing a family business can be immensely rewarding, especially for the older generation, who get to see their enterprise become part of the fabric of family life. But as families evolve and life goals change, the real litmus test of a family business can arise when older family members want to move on.
Family businesses have a lot of positives working in their favour. Family spirit, a shared sense of values, and a committed employee base can all bring strengths to an enterprise that money simply can’t buy.
But families are complex.
Decisions within a family business can be emotionally charged and lacking in objectivity. It can be difficult to separate ‘family’ from ‘business’, and ‘work’ from ‘home’.
On top of these hurdles, family businesses can face liquidity challenges if a key person within the venture – usually a founder or elder, wants to transition out of the enterprise.
These complexities go a long way to explaining why fewer than half of all family businesses in Australia make it through to the next generation.
The good news is that it is possible to ensure the longevity of a family business. But it doesn’t happen by chance.
The upsides of family succession
For families just beginning to consider a change in ownership, it’s worth noting the considerable benefits of formal family succession planning.
The family legacy is continued, and elders are still able to offer valuable support by remaining involved in the business after it has transitioned into the next generation. In a seamless succession, long-term customers and suppliers may not even be aware a transition has taken place.
In short, a successful transition can mean business as usual, especially during the all-important handover phase.
However, this sunny picture calls for planning – and plenty of it. It can take up to five years to achieve a smooth handover, so it pays to start early.
The need to lay early foundations
It makes good financial sense for all businesses to have an exit plan in place. For family-based businesses, this plan shouldn’t just focus on family succession.
The reality is that not everyone in the family will raise a hand to take over the business. In some cases, no one will be willing.
As disappointing as this possibility may be, it does highlight the need to lay early foundations for succession plans. It gives family elders time to rethink strategies to exit the business if necessary.
Key steps – and challenges – in family succession plans
Even when one or more family members are eager to take over the reins, it is still important for succession plans to be formalised in a written agreement – one where all parties are satisfied with the outcomes.
In our experience, which spans working with fourth-generation family businesses, one of the fundamental challenges of family succession planning lies in communication.
Different family members can easily assume various outcomes, which aren’t always aligned. This can be overcome by setting goals, expectations, and guidelines – and having lots of open conversations.
Holding regular family meetings to discuss the transition process is a must-do. These meetings should – as far as possible, involve all relevant family members, even if only one is taking over the business. That’s because each family member may have their expectations. Some, for example, may be concerned about how succession plans could impact a future inheritance.
Allowing time to resolve these issues from an early stage can go a long way to maintaining family harmony. The end goal is for all family members to be engaged, agree, and understand the transition process. It’s not always an easy topic to discuss but it is best to clear the air as soon as possible.
Expert advice is a wise investment
When it comes to potentially sensitive subjects such as succession planning for a family business, the involvement of a third party can be valuable.
The experienced team at William Buck understands the unique position of a family business – and we realise there is more to the succession process than business interests alone.
We can offer expert support in setting an agenda, goals and timeframes. By clearly articulating and documenting the process, we can highlight the various issues that your family needs to discuss while also providing insights into a range of considerations from taxation and funding to statutory compliance and how to fill any missing skill sets when a patriarch steps down from a business.
Importantly, we take the time to understand what is unique about your family and make sure we understand what you and your family are trying to achieve. The advice and guidance we provide can help you create a platform for your business to succeed for generations to come while bringing your family closer together.