Survival continues to be a struggle for many Australian businesses, with half of the businesses that launched in 2010/2011 no longer in operation according to the Australian Bureau of Statistics (ABS). But what about those businesses that do manage to survive – and thrive – beyond that five-year threshold? Small businesses, and family businesses in particular, seldom have a succession plan in place or a long-term strategy other than to survive, make a profit and grow. Here are three steps to ensure a smooth family business transition from one generation to the next:
Have a clear plan
As with anything in life, planning is a key ingredient in business success. While the initial plan may simply involve survival, it is preferable even at that early stage of business development to have a clear exit strategy – and succession plan to achieve that strategy – in place. Handing the reins over to the next generation will involve a different approach to a sale to the highest bidder or simply running the company and draining the profit to provide for your own needs through to retirement. Failure to plan initially could result in strategic errors over the course of the life of your business.
Provide for all parties
Both generations need to be happy with any transition plan. While the younger generation is often keen to gain control of the business, there is frequently a failure to recognize and reward the labours of those who built the business in the first place. If the founding generation simply sold a successful business to a third party they would be handsomely rewarded, so if they see no real benefit to retirement, there isn’t any strong incentive to do so. All parties should be involved in creating the succession plan in order to avoid this uncomfortable situation.
Prepare for ownership
Having created a succession plan, the future owners of the business need to ensure that they are prepared to take the reins. Involvement with the business will allow for a thorough understanding of its workings, while training and/or study can provide valuable knowledge to fill any gaps. While the founders of a company can often grow their business skills as the business grows, their successors may find themselves immediately thrust into a senior management role with a large and complex organisation, so preparation is the key to maintaining corporate success.
By Jennifer Lowe