With only weeks to go until the end of this decade, family-owned businesses need to be taking stock over the Christmas break and making plans in order to ensure success in 2020 and beyond – especially as many family-business owners are looking to retire in the next 5-10 years.
Yes, your business is in full swing right now leading into Christmas but those who will thrive in the 2020s will need to carefully map out their vision for the future.
A Christmas closure, if you’re lucky enough to have one, is the perfect time for family-business owners to reflect and plan for business success.
What does this look like?
Christmas closure is a time to work ‘on the business, not in the business’ - and can take shape in many ways. In my work talking with some of Queensland’s leading family-owned businesses, I encourage owners to use this time to review their numbers in detail, think back and write down what worked well during the year and what did not. It is easy to forget a win, or otherwise when you’re busy ‘in’ the business.
Working ‘on’ the business also means working on yourself and your management team; who might be close family members. A few questions need to be asked. Do you have the appropriate training and development in place for yourself and other family members involved in the business? Are you providing the right kind of environment to attract excellent staff and keep them? What is your leadership style and is it positively influencing your business? And, most importantly have you tackled the most important, but often neglected, issue of succession planning?
With nearly 40% of family firms looking to transfer wealth in the next five years, as baby-boomer owners are looking to retire, it is critical for the economy that family businesses are prepared to meet the challenges of wealth transfer to the next generation. Wealth transfer for families in business, while important to the incumbent and successor family members, is a transition that is only likely to be successful if the incumbent family member:
- Wants to transfer the wealth to a family member (most do)
- Is ready to transfer wealth (about two-thirds of companies have four or more years to effect the transfer)
- Has embedded culture and desire for multi-generational stewardship within the business.
In BDO research conducted, we found many family firms were under-prepared for wealth transfer. Less than half had a complete succession plan that nominates a CEO successor and the sophistication of the succession plans was noticeably reduced for family successors. Over 70% of family businesses had not professionalised their management or governance structures and were yet to engage in the difficult process of ‘letting go’ of management.
In preparing to ‘let go’ and transfer the family business, business owners need to know the size of the pie and how much the business is actually worth. Astonishingly, a fifth of the family businesses surveyed had never undergone a formal valuation. Valuations require professional skills, given the intertwined nature of the business, the family and the unique family factors that drive value.
A critical element for business owners in being able to ‘let go’ is investing in the process of knowledge transfer for the nominated successor. Businesses with formal succession plans require successors to:
- ‘Learn business’ through formal education and working outside the business
- ‘Learn the family business’ in particular the family network and network management skills
- ‘Learn to lead the family business’ by codifying knowledge and learning the tacit knowledge, training in operational and financial management, and thinking strategically in the business.
The most successful multigenerational firms are those who are more adept at managing these factors.
Plenty to think about over Christmas.
Contact our Family Business specialists for more information on how to prepare for 2020.