Family businesses account for about 70 percent of all businesses in Australia. With an estimated $3.5 trillion expected to change generations over the next two decades, succession planning has become a critical focus for family business owners.
Surprisingly, despite this focus, 70 percent of families worldwide still need a succession plan in place. Various factors contribute to this low percentage, from the need to be more aware of the need for the plan to the denial of the need to hand over the business. Some leaders may also have personal ambitions they want to achieve before relinquishing control. However, having a documented plan is critical to keeping business leaders and family members in line.
Daniel Trimarchi, Director of Family Business Advisory at KPMG Australia, emphasizes the importance of managing transition and making continuity planning a central objective. Continuity planning within broader wealth preservation plans is critical to success. This requires deliberate action and careful planning around management.
Trimarchi emphasizes that successful succession is not just about passing the CEO baton to the next generation. Instead, it involves ensuring the continuity of the family and its wealth, with the family business as an asset or vehicle for wealth. KPMG is witnessing a growing demand for family advisory services that combine family office structures to mirror corporate frameworks.
Dealing with generational transitions in a family business requires unique skills. Many family businesses lack knowledge about management frameworks and the process of creating them. In fact, most businesses have inadequate governance structures. KPMG provides guidance on why and how to achieve effective generational transitions, looking ahead a decade or more.
Robin Langsford, Global Head of Family Business at KPMG from 1 June 2023, emphasizes that business experience and knowledge do not automatically translate into successful family business succession. Competing agendas, complex governance challenges, and intergenerational dynamics are often at play.
As “Rethinking Family Business Transitions. Co-author of Rethinking, Rebalancing, Reinventing, Trimarchi encourages business families to view transitions as human processes that affect both individuals and the organization equally. He suggests focusing on continuity issues and rethinking the family’s shared purpose when transitioning roles and responsibilities in the business. KPMG offers three R’s for family businesses:
Trimarchi recommends starting by facilitating the right conversations with the right individuals in the right settings. Providing support to both older and rising generations to make successful personal transitions and choices is critical in the transition process.
developing a succession plan
Developing a succession plan is critical for every business owner, according to Peter Blasis, senior risk consultant at Honan Life Insurance Group. Whether it’s due to retirement, illness or pursuing another venture, having a well-thought-out succession plan ensures a smooth business transition. In unfortunate cases of untimely death, it also provides clarity to immediate friends and business associates on next steps.
The first step in creating a succession plan is choosing a successor, whether a family member, friend or colleague, and clearly communicating this decision. Unlike the ambiguous and cryptic succession document of the TV series Succession, the chosen successor must be openly acknowledged. Business valuation and understanding the legal rights and responsibilities associated with succession planning are also vital. To help business owners prepare their succession plans, the Australian Government offers a free succession plan template.
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