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According to newly released treasury research – the aging population issue is becoming a serious funding issue – a combination of improving medical technology & healthier lifestyles has led to the average 65 year old retiree living another 20 years. But a good portion of people – one in five will live for another 10 years beyond that, so they will have 30 years in retirement. And a further one in 10 will have 40 years in retirement.

It is not easy to plan (especially financially) for a 40 year retirement timeframe. Studies by Macquarie show one big market slide – such as the one we have just endured – can take 10 years off the life of the most popular retirement income solution, an account-based pension. And markets do not always bounce back rapidly.

A key component of retirement planning needs to be financial planning and business owners need to consider the implications of this funding issue on the exit strategy for their business to ensure the wealth they require in retirement is successfully extracted from their business and other investments.

Australian Projected Life expectancy ( years )

In the recently released family business survey 2009 prepared by KPMG & Family Business Australia supported by Bond University’s Australian Centre for Family Business a number of very interesting issues have been highlighted. Based on a survey of 613 family owned businesses in Australia conducted in June 2009, the survey, which is conducted annually, is an interesting insight into family business and some of the key issues surrounding the structures and mechanisms they employee,  growth and progression, economic views and of course succession planning and the next generation.

Some of the key findings are that many respondents to the survey are concerned about balancing family concerned with business imperatives retaining family control and ownership and arranging fair compensation of the family members with active business involvement. These concerns give rise to a variety of structures and governance processes designed to hopefully reach a balance between the competing interests. For example only 28% of respondents have established formal family councils. A third of the surveyed businesses possess a board or other formal governing body or structure and a further 43% say they rely on less formal structures.

A little more than 40% of the respondents planned to pass on the business to their children or other family members and interestingly now 20% intend to eventually sell the business to other owners or key employees. 45% of the respondents already have someone from the next generation working within the business.

In terms of succession planning again some interesting findings come to light  – for many family businesses the act of succession planning is much more complicated than who and when. It can raise very sensitive issues about the future of the business, the potential crystallisation of substantial tax liabilities, the distribution of wealth accumulated within and around the business, individual mortality and relations between family members. Careful strategic planning is obviously essential. However only 15% of the survey businesses reported having any formal succession plan in place a further 30 odd percent said they were currently working on one ( not sure exactly what that means).

A variety of exit options were identified and prioritised as outlined in the table below:

We often find with clients  a “time lag” approach to succession planning – for most surveyed businesses the proposed handover or sale of enterprise remains some years off. Of course, illness, sudden death or accident can throw long-term plans into disarray, leaving both business and family unprepared for the changes facing them. Business succession or disposal plans can and do often change:

Several influences on the succession process were identified and prioritised in order however the businesses ability to generate adequate financial returns was regarded as the most important influence on their succession plans ( in order of impact / priority ) :

In his new encyclical, Caritats in Veritate, Pope Benedict states that “alongside profit-oriented private enterprise and the various types of public enterprise, there must be room for commercial entities based on mutualist principles and pursuing social ends to take root and express themselves.” The encyclical nowhere specifically endorses employee ownership, although it does often refer to Pope John Paul II’s 1981 encyclical Laborem Exercens, in which he endorsed such employee-owned enterprises as worker-owned cooperatives as one means of satisfying this mutuality principle.

Our team at Succession Plus enjoyed a short workshop with the social media guys at Switched on Media ( @switchedonmdeia ) and worked on several new ways to generate closer communication with our clients and referal partners. We will be posting regular items and updates using twitter and facebook and would encourgae our clients and partners to find out more about this exciting new medium. We have asked Switched on media to run an in house workshop for our business partners and clients to learn a little more about these tools – more details soon.