According to the KPMG and Family Business Australia Family Business Survey 2015, family-owned businesses represent approximately two-thirds of the Australian business landscape. Many families hope to retain their legacy, passing their business on to the next generation. When it comes time for you to consider succession or retirement, you will also face the decision: how do I successfully transfer the management of my business?
There are several paths a business owner may take to transition their business, which include internal transition (family succession, management buyouts, MBOs, sale to existing partners or employees) and external transition (sale to a third party). A recent survey shared in Greg Johnson’s new book, Business Breakfree: Seven Steps to Successful Succession, suggests 58% of business owners who chose internal transfer acknowledged they were going to transfer within their family.
WHY FAMILY SUCCESSION?
There are many reasons to choose family succession. Some owners feel fulfilled seeing their business survive – and thrive – in the hands of a capable family member. Others believe their family will be the most invested in the company’s future. Unfortunately, the succession process is not always smooth sailing and only 30% of family-owned businesses successfully transfer to the next generation.
THE CHALLENGE WITH FAMILY SUCCESSION
Some struggles that owners experience with intergenerational transfer, or family succession planning, include:
Discussing this option at least five years prior to your expected succession will offer enough time to determine if it is the right option for you and your family members.
STARTING THE FAMILY SUCCESSION PROCESS
The typical process for passing on the business to the next generation includes:
1. Business owner identifies personal needs and vision for the future of their business
2. An open discussion with family members is held to understand needs and visions for the future
3. Business owner seeks advice from a succession planning specialist
4. Plan is created on how to preserve the owner’s assets for their heir(s)
5. The leadership transfer and transition planning process commences
6. Successors are identified, prepared and trained to take over business
7. Gradual transfer to new leadership and the final handover
Ascend Business Partners recommends nominating a single successor from your children or other relatives involved in the business. If nominating several successors is your best option, it is important to eliminate conflict by:
Choosing the best successor can be a touchy subject that, if not handled properly, can affect even the closest of families. In creating a family succession plan it is important to take into consideration the family members that have the most to gain, and the most to lose, to ensure the plan satisfies both the business and the family.
When it comes time to take the challenging next step, it is best to work with a professional to ensure that you are meeting all business succession needs for both you and your family members. Ascend Business Partners has years of supporting successful ownership transitions between owners and their family.