Family-owned businesses make up more than half of all firms in Australia, accounting for approximately 70% of it. While some of these may not carry the family legacy as they’ll be sold to external entities or forced to close, others will opt to keep their family business running with the next generation taking over the reins of the company.
Inheriting a business opens up a whole world of opportunities. The next generation comes in full of fresh perspective and youthful enthusiasm along with a comprehensive understanding of their business and its clients. As the world progresses with constantly changing technology and innovative approaches, there is often room for a great deal of change and better operational activities.
Succession planning can be a difficult topic to discuss with our clients. Many senior family business leaders have two main aspirations, which are frequently at odds. A part of them wishes to leave the business to the next generation. At the same time, they may find it difficult to ‘let go’ of an organization that they have built and run for years. They are savoring the rewards of their leadership and have honed their craft to the point that they are perhaps concerned whether the next generation is ‘ready’ to take over the company. Succession planning isn’t something you can undertake on the spur of the moment. It takes time to plan for it so that the business can become much stronger and more equipped to handle the coming years.
When I was younger, I had a friend called Julia. Their family had owned and managed a mini supermarket on Sydney’s northern beaches for 15 years, where she helps out every day after school. She used to tell me about how her parents were always stressed as they felt their business wasn’t making enough profits and that their costs were too high. We lost touch after graduating and focused on our respective careers. I ran into Julia at a friend’s wedding one weekend, and she told me that she had taken over her parents’ mini supermarket. It wasn’t quite as ‘mini’ as it had been, and she was running a profitable and efficient operation. The transition and handover of the family business took five years. We spent some time discussing some of the key processes she went through and the factors to consider when planning for business succession.
Some of the key takeaways are as follows:
- First and foremost ask yourself, does the next generation want to take over? Too often the previous generation expects the younger generation wishes to inherit the family business, but this is not always the case. For the business to succeed, the next generation must genuinely be enthusiastic and passionate about it.
- Once you’ve determined that the younger generation wants to take over, get a head start on your planning. Like Julia’s story, the transition period could last several years. The plan should call for a progressive shift of responsibilities and decision-making, as well as gradually withdrawing workload from the older generation.
- Evaluate your company’s product and service offerings. Julia and her business advisor analyzed their business when Julia began the succession planning process for her parents’ mini supermarket (at Dexterous we are experienced in this, and have done this for many of our clients). They found that consumer preference had evolved, with a demand for locally produced natural and organic products, as well as gluten-free and sugar-free options. She adopted these new changes and started redefining the business to meet the ever-changing consumer demands.
- See how you can use technology to your advantage. One of Julia’s biggest frustrations about the way her parents manage their business was that she believed they were using a bunch of traditional and obsolete systems. Her parents could have saved a lot of time and resources if they had just learned to embrace a much innovative system, making their mini supermarket more efficient and profitable. Now that she’s in charge of the business, she has introduced a range of new technology systems at the supermarket, including:
- A new inventory management system – that notified her when inventory levels were low and it’s time to replenish stocks. This was previously handled manually.
- A cloud-based accounting system – Her parents used to do manual data entry using an old version of desktop accounting software. They hated the inconvenience and the amount of time they were spending to record all their invoices and bank transactions. Further, their employees receive their pay in printed form as her parents were using a traditional payroll system. All of these hassles became considerably more efficient and convenient under the cloud-based accounting system.
- Take a few moments to evaluate the changes you’ve made and their impact on the performance of your business. Will you be able to continue growing and improving your business? Put a plan in place to always be innovative in your business, and stay on top of new technology and trends.
Succession planning provides a wonderful time to take a close look at your business and make it better. If well-planned, the process could lead to a slew of new business opportunities. If you’re considering succession planning for your business but aren’t sure where to begin, give us a call at 1300 996 928 or send us an email. As always we’re here to help. Many of our clients have already successfully transitioned to the next generation.