A succession plan is essential for every family business to ensure continuity. It is an issue the family must deal with whether it owns a small business, family farm or a global empire.
Many businesses in Australia are family owned, and business operators are often too busy dealing with today’s operations to worry about tomorrow. However, putting off establishing a clear-cut succession plan in a family business will lead to future problems and can drive a deep wedge into the closest of families.
History shows that succession is the Achilles’ Heel of the family business. Most do not make it past the first generation, with only three out of ten making it into the second generation.
Here are six steps that should be followed to ensure that your family business succession is a success:
- Board meetings or formal family meetings should be held regularly. There must be a defined business agenda and open discussions encouraged to ensure no breakdown of communication between all of the family members involved in the business.
- Plan for the exit of the older generation by setting dates and establishing retirement funds to ensure that they are well provided for. If you fail to have the total support of the older generation, they are unlikely to relinquish their position.
- It is vital to understand who replaces the older generation at the helm of the family business because in order for the business to succeed, it may not always be appropriate for the eldest son to automatically take the lead (whether he expects to or not!). There must be full and frank discussions on this issue and firm decisions made.
- Seek professional advice. It is crucial that all-important planning issues are discussed with your accountant, solicitor and financial adviser.
- Set dates for future meetings so that discussions continue until a plan which provides for all family members in the business has been completed.
- It is imperative that you keep your plan current. Succession plans require periodic revision and updating to ensure that which you have agreed upon remains relevant.
There is an old saying: ‘One generation will build an empire, the second generation will fight over it and the third generation will sell the empire and spend what is left of it’.
The simple and common sense approach of preparing in advance, seeking professional advice and sound, unemotional management, can certainly turn the tide. Don’t let your grandchildren spend what you’ve dedicated your life to.
Your financial adviser can help create a plan of action that takes in Steps 1, 2 and 3. This then establishes clearly defined goals and objectives.
Want to know more?
Talk to a Lewis Financial Adviser.