Most family businesses are small affairs. Many are privately-held family companies and listed public companies controlled by family shareholders. Some family businesses have become major players in key sectors of the Australian economy (such as News Corporation).

Approximately 70% of all Australian businesses are family owned and managed. Unfortunately 65% of family businesses don’t survive into the second generation. A further 20% fail when the business passes to the third generation. These statistics highlight the importance of succession planning by business owners.

Why do so many family businesses fail upon succession?

A lack of succession planning can cause a family business to fail due to:

  • Complicated business structures (i.e. property ownership in the family)
  • Individuals struggling to balance strategic business and day-to-day management with the personal aspects of working with family
  • Issues with inheritance, sibling recommendation, commitment, and ongoing capability of future generations
  • Family rivalries can also make it difficult to recruit the next generation of ownership and management
  • Varying risk tolerance of the heirs
  • Differing wealth preservation priorities of the current wealth holders and the intended beneficiaries

The above issues can be overcome with effective succession planning. Estate Planning ensures the transfer of a family-run business and its assets to the most appropriate individual(s) at the right time. This includes the sale of the family-run business if beneficiaries are not competent in managing the business.

Succession planning considerations

There are various questions you need to ask when developing your succession plan. These include:

  • How dependent am I on wealth extracted from the business to fund my retirement strategy?
  • Can I afford to sell the business now for less than full value and risk not having access to that capital in the future?
  • What are all my assets and liabilities?
  • What ownership structures do I have in place?
  • What insurances do I have in place and who are my intended beneficiaries?
  • Is the transfer and control of assets structured to maximise the benefit to my intended beneficiaries?
  • Am I using the most tax-effective financial structures to protect my family’s interests, now and in the future?
  • Who do I want to assign crucial roles and responsibilities of the business to upon my death?

Providing succession planning advice to family business owners requires specific knowledge and skills. Succession planning should understand your business, and meet your individual situation and wishes.

business owners and Wills