Families need to plan exit
A disconnect between expectation and reality on the future management of family businesses is a sleeping issue. The Geelong Manufacturing Council explains why and looks at the solution AN increasing number of businesses require succession and or exit planning.
The average age of a business owner is 55 and many consider their business to be their largest retirement asset.
However, survey data from KPMG indicates a large crosssection of family owned businesses do not have the requisite succession or exit strategies.
There is a significant disconnect between family business optimism and commercial realism in relation to expectations and outcomes around succession planning.
Nine out of 10 respondents to the KPMG survey believe the same family will control their business in more than five years’ time.
However, this is not supported by statistics that show only 30 per cent of family businesses survive into the second generation, 12 per cent into the third generation, and less than 3 per cent into the fourth generation.
With about $4.3 trillion of assets held by Australian family businesses, and given that 81 per cent of owners intend to retire in the next 10 years, this will trigger a wealth transfer of about $3.5 trillion.
Good planning, looking out over a minimum three to fiveyear horizon, is critical in order to facilitate a seamless ownership transfer to the next generation or to a willing external buyer.
The key enablers of success are: CREATING internal capacity to allow owners or staff to attend workshops and events in order to better understand the methodologies around good succession/exit planning; ESTABLISHING a project team comprising internal and external experts who will be provided time and resources to put together a 3-5 year operational succession plan; RELEASING key staff from their deep operational roles to focus on succession planning in regular structured intervals; and, INVESTING in external (legal, accounting, strategic) advice to support the succession planning and execution process.
The absence of appropriate succession and exit planning can often lead to disharmony between and within families, shareholders, and employees, which in turn can lead to a deterioration in financial position and performance, and the unnecessary increase in business risk to employees and stakeholders across the business.
Succession and exit planning needs a minimum three to five-year horizon to ensure appropriate strategic and operational initiatives are fully deployed and successfully implemented in order to capture and codify all business knowledge (into business systems and processes) and to maximise business good will.
By understanding the importance of the early design and implementation of a structured approach to succession and exit planning, a business will maximise the chance of achieving minimal disruption to the businesses throughout the process of succession, will enhance saleable good will, and will ensure the ongoing survival and success of the business for the benefit of all future stakeholders. This is an edited extract from the Geelong Manufacturing Council’s Best Practice Guide to Succession and Exit Planning.