Family businesses account for around 70 per cent of all businesses in Australia, according to Family Business Australia, but only 30 per cent of these businesses survive the transition from first to second generation and just 12 per cent reach third generation. That’s despite BDO determining that more than 90 per cent of family businesses intend to transfer business wealth within the family.
A major contributing factor to this discrepancy, according to the same BDO report, is that only 39 per cent of family businesses have a complete succession plan that nominates a CEO successor.
To help counter these troubling statistics, BDO Corporate Finance Partner David Fechner has three pieces of advice to help ensure family businesses survive through generational change:
1. Make a clear plan
Fechner says one of the biggest hurdles families faced when succession planning was deciding who would have operational control of the company on a day-to-day basis.
He says there needs to be clarity around who would be directors, and therefore bear the operational risk, and who would have ownership – and of which operation.
“In many cases, we’ll end up with the ownership being held with the older generations, whereas the risk of being director and the operational management of the business will be undertaken by the younger generations,” he said.
South Australian-based family retailer Barlow and Grundy Shoes (formerly Judd Shoes) has navigated seven generations of succession.
The business, which is owned by the Whittenbury family, last year appointed its latest CEO, Damien Whittenbury.
Fechner has worked with the family for two decades. He says as the younger family members became more involved in the business, it has needed restructuring to continue to thrive.
Damien Whittenbury agrees. He said restructuring has ensured Barlow and Grundy Shoes travels in the right direction for future generations.
“Historically we had a board of directors, whereas now we’ve got a CEO and we also have directors, and it seems to be working quite well,” Whittenbury says.
Fechner interviewed all of the family members, both retired and working.
“We filled out quite a long survey – it covered everything you could possibly think of in the business – and with the recommendations I was appointed CEO.”
2. Ensure everyone is on the same page
Although planning family succession is an ongoing process, Fechner says it is important to present opportunities for future generations.
Surveying and workshopping Whittenbury family members inside and outside of the business allowed BDO to gauge how the business should progress.
“The comments out of that exercise were that the family were keen to continue retailing footwear. They were keen to see the business continue and for what might now be very young generations of the family to know there are opportunities to work within the business,” Fechner says.
“So that means we continue to look at growth opportunities in the footwear retail market space, and that we continue a discussion that allows an expectation around how equity in the business might move in the future to preserve that intergenerational business.”
3. Communicate clearly
Fechner says a key to successful multigenerational businesses is creating an environment of open discussion within the family group to stop family disputes becoming work disputes.
“That means engaging with family members who are operational within the business as well as family members who might not be operational in the business at that point in time,” he says.
By working to foster spaces where family members can discuss what was happening within the business, and gain clarity around roles and responsibilities, Fechner says multigenerational businesses have been able to avoid a common trap of letting family get in the way of pure business decisions.
Ultimately, Fechner says succession planning takes time, management, stewardship and open discussion.
For more information on succession planning contact BDO Australia.
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