Family businesses account for 70 per cent of all businesses in Australia and employ half of the country’s workforce.
The cleaning industry has a high concentration of family business owners, and it employs an ever-growing number of people.
These businesses not only support the families that established them, but also the families of those they employ and the families of the businesses that they support through their services.
They form an integral part of the economy and their unique dynamic means that many family business owners hope to pass their business onto the next generation.
Despite this however, research shows that only 40 per cent of established family businesses survive the transition to the second generation. Past that point, 13 per cent will survive to a third generation and only 3% to a fourth generation and beyond.
Why is that the case?
It might surprise you to know that only one in four family businesses formally consider their approach to succession. It’s no wonder then that so many fail.
Succession can be an emotionally charged topic that is difficult for families to discuss. While it can be an awkward topic to bring up, the reality is that succession is one of the biggest risks to the ongoing viability of a family business. The proof is in the pudding!
So what can be done about it?
Unfortunately, there is no silver bullet or quick fix when it comes to succession. Every family is different and every transition is unique. However, by going through due process and tackling these issues head on, you can drastically increase the chance of a successful transition.
By putting things on the table ahead of time and creating transparency amongst the family, you can minimise potential conflict down the track. Once the issues are all out in the open, it can also help relieve a lot of the pressure that family members may be feeling.
With that in mind, the best thing that can be done in terms of succession is actually getting started. This article outlines some practical tips for you to consider in planning your succession.
Start with the end in mind
As a starting point you need to understand where you’re going.
What does success look like for your family and your business? What is your timeframe for getting there? Who do you want to be your successors? What do you want for your family and your business?
You may wish to transition the management and ownership to some or all your children over a specific period. You may wish to transition the management of the business to your employees, separating the running of the business from its owners.
You may want to build some of your wealth outside your business for your family who is not involved in the running of the business or you may wish to sell your business to capitalise on the hard work you have undertaken over the years.
Whatever the vision that you have for your business and your family, it’s important to know and understand if this vision is shared with your successors and the family.
Knowing exactly what you want can often be difficult and can take time, but the sooner you start thinking about it the clearer it will become.
Know where you are in the journey
The next step is to understand where you are in the journey and what obstacles and challenges you face.
Have you made any progress to date? Are you ready for succession? Do your children want to take over the business? Do your future successors have the right skills and leadership capabilities? Do your successors have authority, credibility and your endorsement to make the business a success?
To answer these questions, you need to understand the different perspectives and motivations of each individual that the succession impacts. The only way to gain this understanding is through communication.
An advisor is a valuable resource in facilitating these discussions as they can look at your situation independently and taking the emotion out of the conversation.
Advisors will help you get an understanding of where you, your business and your family stand so you can create alignment.
Once you understand the vision for the future, and where you and your family are on the journey, you can then start to design a plan.
The plan should address the challenges you are facing now and those you potentially will face along the way. It should take care of the three subsystems that make up a family business – the family, the business and the owners.
It should support the business and the family, and it needs to set clear roles and responsibilities for how the plan should be executed.
At the end of the day, you create a succession plan to move forward, to take action. The plan should detail the actions you will take. Including the steps involved with both the management and ownership succession.
Importantly, businesses and families change over time, so a succession plan also needs to change. To support this, you will need to create a governance structure that ensures the plan is executed and evolves over time. These structures may include;
- A family constitution (the rule book)
- Regular and structured family meetings
- Advisory boards
- Strategic planning sessions for both the family and the business
- Detailed and ongoing analysis of the situation and the strategy
The process has many moving parts, many of which you will not know about or have the expertise in – and what you don’t know can hurt you. That’s why it’s important to get advice along the way.
A family business advisor can help you with the process and ensure you are engaging with the right advisors at the right time so your legal, tax, estate planning, training and development needs are taken care of.
At the end of the day, the goal should be to have a succession plan and a succession planning process that is transparent, understanding and creates alignment.
It should create greater certainty for the future, collaboration and openness so that you can address issues or challenges before they arrive. The most effective plans;
- Preserve and generate family wealth
- Minimise disharmony between family members
- Minimise the impact of tax
- Encourage personal growth of family members
- Fund retirement and family lifestyle
- Bring clarity to where the business and the family are heading
Remember, succession is a process and not an event. It takes time, and the more time you invest in it, the better.
Andrew Ash is director, business advisory, HLB Mann Judd
This article first appeared in the July/August issue of INCLEAN magazine.
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