Many business owners dream of building their business from the ground up and exiting with a strong and successful legacy after handing over the keys to the castle to their daughter or son. Yet just as many business owners realise those aspirations will have to stay fantasies when their business succession planning ideas come crashing down around them.
It's often a sad realisation that your child may not want to carry on the tradition - even after all the blood, sweat, and tears you’ve poured into it.
If you’re stuck scratching your head, don’t worry. You’re not alone.
More Australians are Saying “No Thanks”
Some business owners know from the outset that their kids don’t want the torch passed on. Other times, perhaps they’ve changed their mind after working in the business for a while and are planning to choose their own career path instead, study primatology in university, or heading abroad to test markets overseas.
Regardless of the reasoning, statistics from Family Business Australia paint a grim outlook for the future of dinky-di Australian business.
Just over than 30 per cent of all family-owned businesses will survive into the second generation; 12 per cent will still be around in the third generation; and just three per cent will be operating in the fourth generation and beyond.
5 Family Business Succession Planning Tips
If your daughter or son decides that your family business isn’t for them, it’s time to go back to the drawing board. Consider other exit strategies. Just, whatever you do, don’t leave it until it’s too late.
1) Start Planning Now
Don’t be blindsided as a parent, if your child does not want to take over. You should have frank and honest conversations with your potential successor about what they want. And have them at multiple intervals in their progression to adulthood. If they are interested, begin training them early to allow for ample time to learn the ropes.
If you’re unsure, seek counsel from your business partners, your spouse, and other members of the family to help assess the situation. You should always have a contingency plan!
With early planning, you can strategise multiple exits you’d be able to take based on how the succession conversation evolves.
2) Assess Your Options
If you’re nearing retirement age, and your kid has dumped the news in your lap, there are a few paths you can take depending on your financial situation, your familial agreements with other shareholders, and your legacy.
First things first, can you afford to retire without selling your business? Or does your retirement hinge on profiting from a business sale? Is someone else in your network poised to take over the business? (More about that next), or how do you want to be remembered by? All of these motivators will dictate what kind of exit you need.
Are you clear on your motivations for exit or succession planning?
Our simple checklist will take you through 3 critical considerations. Understanding these key motivators will help you choose the best strategy for your exit or succession plan.
3) Who Else is Poised to Take Over?
You may have gone your entire career believing your daughter would take over your business one day, when actually she doesn’t want it. Rather than tossing in the towel, think critically about other family members who may qualify.
Nephews, nieces, cousins, and any step or half-relatives all have the potential to make great business successors - you just need to give them the opportunity. As a bonus, if they are one (or two) steps removed from the business, they may bring a fresh perspective to the table.
Remember, when deciding who could take over, use your head and not your heart. Treat it like any hiring decision - what will be best for the company rather than for your immediate family. You’re choosing a CEO, not your favourite relative.
4) Put Emotions Aside
It’s commonly stated that family and business is an anecdote for disaster. That’s because family businesses are emotional affairs. This passion and dedication can fuel a lot of growth and development, but it can also cause setbacks, grief, and damage relationships with your kin.
And realising your child does not want to follow in your footsteps can be a soul-crushing blow.
If you’re unsure of how to pass your business on, it’s time to stop. Take a minute. Reflect. If you pick a successor based on emotional weight rather than logic, your family business could be one of the unlucky ones that does not survive into the next generation.
5) Get Professional Advice
Sometimes you’re just too embroiled in the politics of a family business to perhaps make the best decision. That is common, and it’s OK to seek the perspective of an outsider. Separating fact from feeling is a challenge. The team at Exit Advisory is here to help you with your business succession planning so that no matter what, your assets and your legacy are protected.
If you liked this article we'd love you to share it!