The Need For Family Business Transition Planning
As Australia’s baby bombers retire or move into retirement, business succession planning – or business transition planning as we at Transition Planning Australia prefer to call it - is becoming an increasingly important concern for small and medium size businesses, including family businesses.
In the past decade, the first of the baby bombers have reached retirement age, and all boomers are having to consider the future ownership and management of their businesses if they have not done so already. There are some telling statistics to support this –
- Australian Bureau of Statistics research a few years ago showed that 33% of small business owners are aged over 50, with this figure increasing at an annual rate of 3.7%;
- While 70% of family business owners believe transition planning is important, only 12% actually have a documented plan in place;
- 60% of CEOs in a recent survey by RMIT University indicated that they propose to retire within the next 10 years; and
over half of all the businesses surveyed in that study, had no strategic or long term plans.
The often-quoted statistics around the Australian family business sector paint a clear picture of the enormous inter-generational transfer of wealth taking place and set to take place in the next ten years, as baby boomers retire. Family Business Australia summarised some of those statistics in its briefing paper for National Family Business Day in September 2012, largely based on the results of the KPMG and FBA Survey of Family Businesses 2009, and the MGI Australian Family and Private Business Survey 2010. For example:
- the estimated wealth of the family business sector is $4.2 trillion;
- of this, $3 trillion relates to first generation wealth;
- 81% of owners intend to retire in the next ten years, creating a wealth transfer of $3.5 trillion;
- the average age of a family business owner is 55 years;
- 41% intend to pass the business to family members.
The Top 5 Issues For Families In Business
The surveys determined that top five issues for families in business are:
- Communication between family members;
- Letting go of leadership/ownership control;
- Providing liquidity for family owners to exit;
- Securing adequate capital for growth and retirement; and
- Choosing a suitable ownership structure for the next generation.
Advisers to family businesses should take note of these factors when undertaking assignments for their family business clients – although this will not come as a surprise to experienced business advisers who will already have had considerable exposure to these issues in client engagements.
Overview
Having, by reference to the above statistics, confirmed what we already knew about the importance of business transition planning, and having regard to the top five issues for families in business (and once again there are no surprises there) we address the following issues:
- The importance of planning well in advance of a retirement or transition event;
- Some typical family dynamics which distinguish family transition arrangements from arm’s-length transition engagements:
- Operators and non-operators
- Bonus for operators
- Using an external management team;
- The role of external advisors in the family business transition process;
- Broad concepts for the family transition strategy:
Factors to consider in developing the family transition strategy;
- Family Council;
- Family Assembly;
- Family Agreements; and
- A suggested process to formulate a Family Transition Plan.
- Family Business Owners needing assistance in letting go are encouraged to consider the Programs provided for Business Owners
Share The Article On Social
