Family businesses make up around 70 per cent of all businesses in Australia. With an estimated $3.5 trillion expected to transition generationally in the next two decades, succession planning has become a crucial focus for family business owners.
Surprisingly, despite this attention, 70 per cent of families globally still need a succession plan in place. Various factors contribute to this low percentage, ranging from a need for more awareness about the need for a plan to denial of the necessity of handing over the business. Some leaders may also have personal aspirations they wish to fulfil before relinquishing control. However, having a documented plan is crucial to align business leaders and family members.
Daniel Trimarchi, Director of Family Enterprise Advisory at KPMG Australia, highlights the importance of managing the transition and making continuity planning a central objective. Embedding continuity planning into broader wealth preservation plans is essential for success. This requires deliberate actions and careful planning around governance.
Trimarchi emphasises that successful succession is not merely about passing the CEO baton to the next generation. Instead, it involves ensuring the continuity of the family and its wealth, treating the family business as an asset or vehicle for wealth. KPMG is witnessing increased demand for family advisory services that integrate family office structures mirroring corporate frameworks.
Dealing with generational transitions within family businesses requires unique skills. Many family enterprises lack knowledge of governance frameworks and the process of creating them. In fact, a majority of businesses have inadequate governance structures. KPMG provides guidance on the why and how of achieving effective generational transitions, looking ahead a decade or more.
Robyn Langsford, KPMG’s Global Head of Family Business starting from June 1, 2023, emphasizes that experience and knowledge in business do not automatically translate into successful succession within family businesses. Competing agendas, complex governance challenges, and inter-generational dynamics often come into play.
As a co-author of the whitepaper “Reimagining Family Business Transitions: Rethinking, Rebalancing, Reinventing,” Trimarchi encourages business families to view transitions as human processes that impact both individuals and the organization equally. He suggests focusing on continuity issues and rethinking the family’s shared purpose during the transition of roles and responsibilities within the business. KPMG recommends the three Rs for family businesses: Rethinking, Rebalancing, and Reinventing the transition process.
Trimarchi advises starting by facilitating the right conversations in the appropriate settings with the relevant individuals. Providing support for both senior and rising generations in making successful personal transitions and choices is crucial in the transition process.
Developing a succession plan
Developing a succession plan is crucial for every business owner, according to Peter Blassis, Senior Risk Advisor from Honan Life Insurance Group. Whether it’s due to retirement, illness, or pursuing other ventures, having a well-thought-out succession plan ensures a smooth transition of the business. In unfortunate cases of untimely death, it also provides clarity to immediate friends and business partners regarding the next steps.
The initial step in creating a succession plan is to select a successor, whether it’s a family member, friend, or colleague, and clearly communicate this decision. Unlike the ambiguous and secretive succession document in the TV series “Succession,” the chosen successor should be openly acknowledged. Valuing the business and understanding the legal rights and obligations associated with succession planning is also vital. To assist business owners in preparing their succession plans, the Australian government offers a free succession plan template.
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