The results of the 2023 Family Business survey showed succession planning is still a topic of high importance for family businesses.
The results revealed 72 per cent of family businesses believe succession planning would be an important topic for their business over the next two years.
Succession planning is not a destination, but a journey
Succession planning in businesses can mean a number of different things depending on who you are ask. Succession generally covers two key components:
- Succession of management of the business; and
- Succession of ownership of the business.
These can be undertaken concurrently or in stages; it really depends on the business, how large it is, and various complexities such as the number of family members involved or who needs to be consulted. It may take a number of years and can evolve over time as people and the business also change and evolve.
The process may be impacted by other factors such as economic conditions, regulation, and even the individual health of everyone involved. Whether succession is planned, or unplanned, one thing is for certain – it will happen at some stage and a planned succession usually has better outcomes for the business, the family, and any other interested stakeholders, than an unplanned one.
You need to be prepared for the unexpected
A structured succession plan is documented and well communicated with the family. In our experience, sometimes owners of the business want to minimise stress within the family as they’d prefer them to enjoy their youth. As a result, no documented plan is in place; agreements are done via a handshake and one day an unexpected event might happen leaving an integral member of the family unwell or no longer here.
The stress placed upon the family is enormous. Employees are stressed they won’t have a job, banks are concerned as their debt won’t be paid, suppliers are concerned about their contracts. This stress can be avoided by having a well communicated plan – one that might never need to be executed.
Succession planning does not mean retirement
The 2023 Family Business survey showed most respondents over the age of 55 considered succession planning to be a very important topic. In many instances, succession planning is seen as letting you balance your life with other interests, not just retire, after growing the business. This is why sometimes succession planning may also be described as ‘transition’ planning.
An example of a management succession may be a Director stepping back from day to day duties of the business, but continuing in a Director role on the Board where they’ll redefine their responsibilities and remuneration packages. An example of ownership succession may be a staged transfer to the next generation when certain milestones are met.
Insights from the younger generations
Our recent survey also found 64 per cent of 25-34 year olds didn’t place great importance on succession planning and this could be because they were less affected by health or retirement issues. Further, 85 per cent of businesses operating for less than five years considered succession planning not important, as well as 53 per cent of businesses with revenue under $1m.
Younger and smaller businesses may have less family members involved, and less complexity around the roles of management, family and owners in the business, that would mean these issues would be considered complex. This indicates as businesses grow and mature, both in years and in revenue, the succession planning issues become more complex. Like many businesses, the early stages focus on survival and growth, and as a business grows and matures becoming multi-generational, the issues around succession planning may become more difficult, as the number of stakeholders in the business increases.
Final conclusions
When it comes to succession planning, 81 per cent of respondents are either formulating or implementing their succession plan. As previously mentioned, having a planned succession will result in far more favourable outcomes for the stakeholders than an unplanned one. A higher proportion of the respondents aged between 35-54 are in the formulating phase, and a higher proportion of businesses that have been operating between 31-70 years are in the implementation phase.
Businesses that have been in existence for more than 30 years are more likely to be implementation phase, as in some instances, they may have already been through a succession and understand the importance and impact it can have on a business and family when a succession is considered ‘successful’. The survey results also showed a higher proportion of larger businesses – those with more than $50m revenue or over 50 employees – were also in the implementation phase of a succession plan.
We’re here to help
Thinking about formulating a succession plan for your family business? At Grant Thornton, we have assisted many family businesses on their succession journey. Our FREEDOM model allows us to assess what issues could hinder your succession plan.
What is the FREEDOM Framework?
How do we define ‘transition-ready’? Introducing the FREEDOM Framework.
In working with many family businesses in becoming ‘transition-ready’, Grant Thornton Australia has developed a tried-and-tested framework for assessing the preparedness of family businesses to successfully achieve generational transition, from the incumbents to the next (rising) generation.
This FREEDOM framework is built around the seven key challenges that we most often see as barriers to successful generational transition.
Financial security: Have the current owners accumulated sufficient wealth outside of the business or will a transfer generate sufficient funds to properly redress the situation in an appropriate timeframe?
Refocus of life plan: Do the current owners have meaningful activities outside of the business that will sustain them as they scale back their involvement?
Electing a successor: Are the current owners able to choose a successor from the available candidates; and is the candidate willing to accept?
Education and support: Does the next generation have the relevant qualifications and experience, and access to personal development, coaching and mentoring resources to guide them through transition?
Disasters & unplanned events: Is there a plan that considers contingencies in the case of death, disability or other crisis events?
Objectives alignment: Do the current and next generations have a shared vision and agreed family values in respect of the family business?
Managing communication: Is there appropriate communication and trust between the current and next generations, enabling effective decisions and the sharing of information?
We work with your family to ensure you have the skills to navigate these issues, setting your family up for future success.
Learn more about how our Succession planning services can help you
