ALL IN THE FAMILY

Passing on a family business requires rules of succession.

It's a "club" that boasts among its members the Packer, Lowy, Murdoch and Smorgan dynasties - along with many more household names - and it's called the family business. And while such businesses are the source of many high points and much pride for parents, they can also be a massive challenge.

Passing on a family business from one generation to another has become so hard that surveys are now indicating that nearly one in two family businesses plans to look outside of the family for the next chief executive officer. And experts say this is the right thing to do.

And why is it so?

It is partly because family members either don't want to take on the business or they simply aren't up to it.

Family businesses are recognising that, in order to grow and survive in a globally competitive environment, the business must get the requisite skills. If the family don't have them, they will look outside.

Whatever the precise cause, just about one in two family businesses is looking at an outsider to run the family heirloom.

Family business is by far the largest sector in the Australian economy. It is estimated that more than 80 per cent of Australian businesses are family owned. This covers both large and small operations, and cuts across all industries.

The Family Business Association makes the point that "they are also our largest employer". However, they don't seem to be breaking their necks to keep the management, at least, all in the family.

Surveys by family business academics say there appears to have been a shift in the number of businesses planning to tap into the next generation. More than 40 per cent indicate they are unsure of the succession of the family business and of those who are planning to bring in future family members, only 38 per cent have a succession plan.

The survey concluded "Most owners are control freaks; they're secretive and they think they are bullet-proof".

Family businesses really have no choice and should create succession plans. Without a plan the current owner is actually imperilling his/her own creation.

"If there is no one ready to take over when he / she is ready to retire or, worse, dies, the business will struggle to survive".

Surely this is not in anybody's best interest!

Here are some coaching tips: your 7 Step Plan:

1. It should be linked to both the business and the retirement plan.

2. Future family members' participation should account for their skill set, roles, salaries and their commitment.

3. Look outside the business for managers and directors. Use profit-share or equity offers to attract good external people.

4. Establish a minimum percentage of profits that will generally be available for distribution.

5. Have an exit strategy in place and be sure family members agree on how payments will be made and how equity will be valued.

6. It should cover your involuntary departure from the business because of death, illness or injury.

7. Have a family constitution that covers disputes, entitlements, rights etc.

   Tony Martin - Director Advantage One
                         Strategic Financial Coach

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