Have you had a discussion about your successful family business?

Have you had a discussion about your successful family business?

 

Family Business Australia cites that by 2020, when the last Baby Boomers hit their mid-70’s, we will be in the midst of the biggest intergenerational wealth transfer in history, where 40% of today’s managers in family and small business will have reached retirement age.

 

What happens to a business when parents or grandparents no longer want to, or are able to run the business?

 

Succession planning needs to start in family businesses NOW.

 

It can make or break a small business, divide families and there is no easy solution, succession planning for family business is critical. Approximately one third of family businesses consider themselves exit or succession ready.

 

No generation wants to necessarily entertain the prospect of handing a business over. Many families struggle to even discuss the financial and emotional issues that come with succession planning for a business. Yet, planning for the day you leave your business is vital.

 

Succession planning in family businesses can be a delicate process. The process can be rife with guilt and arising tensions resulting in arguments, resentment, angst and grudges.

 

Many times a family business comes with many assets, commitments, expectations and not a lot of cash, particularly agricultural based businesses.

 

By having a detailed succession plan families can plot out the pathways for the business through change, in order to meet the best interests of the family, the business and the individual. A good succession plan allows a smooth transition with less chance of disruption to the business and minimal relationship strain within the family.

 

One of the common issues in family businesses is pressure between the family and a new partner of a family member. Expectations on family members could be unfair or unrealistic. There is certainly a lot of compromise expected in the succession planning process.

 

It is also important to review and plan for the business’ future skills gaps, training needs, roles and responsibilities. Timeframes need to be realistic and able to be adhered to.

 

Part of the process requires to appropriately value the business, outline financial expectations such as retirement payments, sale details, buyout details and taxation implications.

 

Carefully setting up structures for the future transfer of assets requires documentation. Make sure you have documentation available including the business name registration certificate, ABN/CAN registration, GST registration, insurance papers, lease papers, legal wills, etc.

 

Tips for your succession planning process:

  • Planning is critical. Start early, yet understand plans can change.
  • Two-way communication is important. Be transparent about all expectations.
  • Respect everyone’s right to have boundaries – what they will and won’t accept.
  • Have all your paperwork in order before the time comes to hand the business over.
  • Know that succession planning issues are resolvable, manageable and able to be negotiated. Do not allow them to become permanent.
  • Get professional advice from a business adviser, accountant or solicitor.
  • Know your exit strategy and obligations.

 

Who can help develop a succession plan?

 

Family Business Australia has accredited advisers that can help you to develop a succession plan.

 

Use the Family Business Australia tool to find the right adviser to help. For more information, contact Family Business Australia on 1800 249 357 or via email at info@fambiz.org.au.

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