Did you know that more than half of the Australian workforce is employed in a family business?
Unfortunately, we fear that many family businesses will fail over the next decade due to the unprecedented challenges facing the sector.
Poor succession planning, lack of capital and governance issues combined with possibly the largest generational transition in history, will assume proportions that could destroy many businesses.
A 2013 survey found that while nearly half of Australian family businesses (worth approximately $1.5 trillion to the economy) intend to pass their business on to their children, less than 44 per cent had put a formal succession plan in place. This means that as aging baby-boomers are looking at exiting the firm, their businesses, families and heirs aren't ready to take over.
There are a few reasons for this:
1. Only a few businesses have family governance structures
Without family governance, businesses are open to the risk of internal discord and ownership issues down the line.
2. Business leaders don't know how to start the process
Leaving succession planning too late is very risky; a sudden death or unexpected illness can harm the business and compromise the family's financial health.
3. Businesses have limited access to capital for liquidity
With banks, private equity firms and other traditional sources of business financing reluctant to work with the complex family dynamics inherent in family businesses, liquidity events due to retirement or family member exits can put a serious strain on business cash flow and limit exit options.
4. Businesses fail to leverage their 'family effect'
While research shows that family businesses tend to outperform their nonfamily peers, many family firms don't harness the power of their 'family effect' – such as leveraging the trust clients have for family businesses. They miss the great opportunity presented by one of their greatest advantages.
5. Focus is on estate planning not management succession
Unfortunately, many business leaders make the mistake of confusing estate planning with succession planning. Estate planning is not management succession planning. If business leaders are really serious about ensuring the longevity of their businesses, it's critical that they begin training a successor and laying the foundation for the future success of the business.