Running a family business is not what it used to be. Issues such as changing social trends, the communication revolution and a much more competitive marketplace, mean the old ways of doing things just don't work like they used to.
Research has shown family run businesses compared to non-family run businesses are:
- More risk averse;
- Don't feel they can expand internationally;
- View modern business practices and methods as too difficult or costly to implement; which shows a resistance to "professionalising" the business and
- Are unable or reluctant to pursue growth.
Does this sound familiar? The pressures on family businesses to survive in today's business environment are high but even so what have you done about planning for the future of your business when you leave in the next 5, 10, or 20 years? What succession plan have you adopted and what strategies have been put in place to transform the business and/or transfer it whether that be to the next generation of family members or otherwise?
When thinking about what to do when you want to leave the business and formulating a plan some common questions and concerns for owner-managers in family businesses are:
- Do the children want to be involved in the family business?
If yes, then:
- how do we affect management succession to the next generation?
- do family members involved in the business have the appropriate skills and training?
- what if they do not perform?
- is there a need to diversify to take advantage of the various skills and interests the next generation may have in relation to business?
If no, then what do I do with the business? Sell it, close it down or professionalise it?
- How can my estate be planned to:
- protect the business, when some of my children are active in it, and some are not?
- provide me with a suitable retirement and lifestyle which I want, when the business is the only asset we have?
- How is conflict among family members avoided?
The issues surrounding planning what to do with a family business in the future are many and can be very complex. The matters needed to be thought through are not just legal, tax and accounting issues but intergenerational, emotional and personal. It is clear family businesses, of all types, large and small, grapple with the problem and understandably so. This is shown in statistics which indicate:
- 33% of family businesses do not have a written business plan;
- 53% of family businesses do not have a strategic long term plan; and
- only 40% of family businesses have some type of formal strategic plan compared with 67% of other businesses.
With the average age of current owners and controllers of most family businesses being 58 and part of the babyboomer generation, who are approaching retirement, and the much different needs and expectations of generations X and Y, the importance of undertaking planning now rather than putting it off until later is high. The risk in being unprepared for succession and not having implemented an appropriate transition/ succession plan is the business may eventually fail or simply need to be shut down.
By failing to plan early you may miss out on opportunities to achieve an outcome that properly suits the needs of all those involved. Instead you may have to make unwanted decisions or compromises if time is short and pressure is high when you are actually forced to do something with the business.
Is it difficult to plan and create a suitable strategy? Maybe; however with any seemingly difficult task if you do not start it, it will always be difficult and become increasingly difficult as time passes.
