WHAT’S HOT IN THE WORLD OF FAMILY BUSINESS?
Posted on 7, April 2014
in Category blog
Information about what’s going on in the world of family business keeps growing. Two Australian surveys have recently been released, the MGI/RMIT Australian Family and Private Business Survey and the KPMG/FBA Family Business Survey 2013 conducted by Adelaide University. The surveys are independent and address different aspects of family business, in turn, reviewing the results in tandem lead to some interesting insights.
The top three issues identified in the KPMG/FBA study are:
1. Balancing family and business issues
- Maintaining family control of the business
- Preparing and training successors
These issues are consistent with two of MGI’s top three:
- Lack of growth and profitably (no different to any other post-GFC business)
- A lack of planning and corporate governance
- Exiting the business is a major dilemma
All of these issues obviously require attention, but as we spend a lot of time advising family businesses, we would like to focus on the issues that relate to the interaction between the family and the business and in particular those relating to business continuity, be it by sale or succession. Some thoughts that occurred as we analysed the surveys:
- It is estimated that family businesses account for around 70% of all Australian businesses. The MGI survey has found that 25% of owner-managers are aged over 65, and that 37% of owners are in the 60 to 69 age bracket. This verifies what we already know; that there is a baby boomer bubble that is working its way through our population which will impact on both the business and on the wealth and harmony of the family behind it.
- It has been said that succession planning is viewed in the same light as diet and exercise – ‘great idea, I’ll get around to it one day’. This is confirmed by findings which indicate that though 65% of owners indicate that their businesses are not exit or succession-ready, 56% don’t plan to do anything about it in the next 12 months! Unfortunately, like diet and exercise, succession is not something that will go away or be sorted overnight. A similarity however is that with each factor the longer you leave it, the more damage it does and the harder it is to correct.
- The extent of business continuity planning is woeful. The KPMG survey highlighted that only:
- 10% have a strategic plan in place
- 12% are preparing or training their successor
- 10% have an ownership transfer or sale plan in place
- 8% have a process for appointing a new CEO
Though many say that plans are being developed, it still looks like a lot is being left to chance. The KPMG survey found that two thirds of family businesses intend to pass the business to family members. This is consistent with the 44% that MGI found want to sell at some point. The MGI study however, uncovered an interesting issue with 58% of respondents indicating that the younger generation are not as interested in managing the business as the older generation. So who will? Issues such as building effective management teams, and identifying a non-family CEO whose values are consistent with those of the family business become apparent.
Around 44% may well want to sell the businesses, but the question is – at what price? The GFC has depressed business valuations and it’s certainly not a seller’s market with so many wanting out. But here’s the dilemma. As mentioned above, two thirds of owners don’t believe that they are sale or succession-ready, yet more than half don’t plan to do anything about it!
According to the MGI Survey 66% of owners believe that they have an adequately funded retirement program, however a third of them are relying on the sale of the business, or ongoing family ownership to provide the cash for retirement. So again, why the reluctance to act?
From the current owner’s perspective there are a range of financial, emotional and control issues involved in stepping back. The GFC has impacted on superannuation and retirement savings, so personal financial security is a consideration and many are reluctant to let go until their coffers have been refilled.
Letting go is also a daunting prospect for those on the brink of retirement. They currently lead a vibrant, purposeful and fulfilling life so why should they willingly step into the unknown? Developing a life plan is crucial, yet KPMG found that only 9% of CEOs have a retirement plan in place.
So what do we do with this information? We believe that many family businesses are fast approaching the point of no return. Urgent action is required to plan for the future at a business, family and personal level. It may sound difficult, and it will invariably give rise to a number of contentious issues, but it is not as hard as it may seem.
As some of the issues can be difficult to address internally it’s a good idea to involve your trusted adviser. As KPMG point out, for most people developing a business continuity plan is a once in a generation event. Working with an experienced adviser who has seen it all before, and who can test your strategies and keep you on track, will pay dividends in the long run for both the business and the family.
Endeavour Business Brokers are experts at working through exit planning and generational change issues.