Insight

Does your family business have a succession plan?

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Thinking ahead makes a lot of sense for us all, as we navigate towards an uncertain future.
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It makes even more sense when a business is involved, as good planning can often determine success or failure.

But what might seem sensible to us from the outside, can easily be overlooked or ignored when the personal fears and biases of those making the decisions come to the fore.

Nowhere is this better illustrated than the data on succession planning by family businesses from the Family Business Survey 2021, conducted jointly by Grant Thornton and Family Business Australia and Family Business New Zealand.

The findings from the survey represent a stark reminder that despite the obvious benefits of forward planning, the most common approach adopted by family groups is to do nothing, and hope for the best.

Leadership transition

Almost one third (30%) of families have not considered transition of leadership at all. Of the remainder, more than half (56%) of families have plans to transition leadership, and of those, two in three would prefer to transition to a family member. But only 13% have an agreed plan to prepare or train a successor, and only 13% have a defined process for appointing the next CEO.

Is selling the business the right option for your family?

Similarly, almost one third (32%) have no ownership transition or exit strategy. Of the remainder, 36% intend to transfer ownership to family members, and 26% intend to sell to non-family parties. But only 12% of families have an agreed ownership transfer or sale plan.

What’s wrong with this picture? An alarmingly high one-third of families have not even considered leadership or ownership transition; and those who have, have done little or nothing to plan for it.

It’s important to recognise one inescapable truth: transition in family business is inevitable, as the clock winds inexorably forward. The choice that families have though, is whether or not they have control over how that transition occurs.

Many families avoid the discussion about transition because they fear the changes that will occur, for a number of reasons. Founders can be reluctant to relinquish control of the business they created, and face an uncertain future without the security of being involved in day to day decision making. Or they might be financially bound to the business, as is common for owner wealth to be tied up in business assets. Potentially difficult conversations, involving choosing between two or more potential next generation leaders, are avoided. Where these issues exist, many family owners struggle to see any potential resolution. It becomes easier for everyone to simply carry on as they are.

Avoiding transitioning in crisis

In the absence of planning, ownership or leadership transition will often be triggered by a crisis event, for which little or no preparation has occurred, and with no agreed path forward. A death or disability of one or more key family members, or a business disaster or relationship breakdown, can set off a chain of events that occur at a time when the business is in turmoil, and with the family in an unfit state to make rational decisions on a collaborative basis.

For many family groups, being forced to make decisions under this type of stress, the most obvious answer is to sell the business. Unfortunately, astute buyers can take advantage of a “fire sale” situation, the result being that a sale can leave the family owners seriously short-changed.

With no succession plan in place, where do you start?

The most important thing a family business can do to prepare for future transition is to start a conversation well in advance of any impending leadership or ownership change. These discussions should be open and transparent, with family members having an opportunity to express their own view of the future. Every family group will have different issues to resolve, and family members need a space to feel they can talk honestly without fear of reprisal.

The second most important thing is to keep the conversation going. This could include committing to a regular family meeting, with a formal agenda to keep the group focused. Many families achieve successful conversations by having one or more family members championing the planning process to keep things moving in the right direction.

Thirdly, make sure everything agreed is properly documented to avoid the possibility of misunderstandings.

Seeking outside help

Many families who have not already experienced a transition event can benefit from external assistance in developing their transition plan. This can include involving a non-family executive familiar with the family issues, or by engaging an independent professional facilitator, such as an adviser accredited with Family Business Australia.

To avoid discussions that don’t lead to defined action, families should also consider having conversations using a tried and tested process, such as Grant Thornton’s FREEDOM Framework.

Family Business Survey 2021
Family Business Survey 2021
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