Posts Tagged ‘Family Business’

According to the recently released Smart Company WHK SME directions survey the message simply isn’t getting thru to business owners – only 35.3 % have a business exit strategy !

For at least the last 10 years advisers have been warning of the impending wave of baby boomers looking to exit and hand over their businesses – but it seems business owners have largely ignored this advice. A combination of the GFC causing business owners to hold off selling ( as the market was so bad ) or chosing to remain at the helm during bad times and the reduction in asset values means many business owners are not going to recieve the nest egg they had been expecting.

This means the great wave of exits has probably simply been delayed by a year or two.

Interestingly, a surprising number of respondents who did have an exit plan said they were simply likely to wind the business down when it came time to exit – Hardly a good strategy to maximise value !

I was sadly, not surprised to read only last week in my local paper the story of a family owned business with the owners planning to retire in November and have simply chosen to close the doors despite trading for over 40 years. The story includes the very familiar comment “our son and daughter have worked here for 15 years but they didn’t want to take it on” a trend which has been emerging for the last five years and is typical of family businesses unfortunately.

The owners also state that they have been unable to have a holiday since 1995 and have attended the business every day to feed the fish!

Importantly, the article also recognises business owners fear (often well founded) that whilst they may be able to transition the ownership by selling transitioning the management was more of an issue and may well cause them to have to return to their business – “we are quite passionate about what we do and are wary of people coming in and not being able to support it with the rent money” the owner said “we thought if the new owners failed we would have to come back in.”

Sadly this has led to the decision to close the doors after 40 years retire in November and walk away.

The latest survey covers performance during the quarter to end July 2011 and expectations forward for the rest of this financial year, and is the result of responses from over 1800 business owners – approx 1,400 small businesses and about 400 medium businesses ( more than 20 employees ) . Key findings were:

Business confidence fell further during the last quarter, with confidence now at the third lowest level recorded in the 18 year history of the index.

In line with the drop in confidence, there were also falls in all key performance indicators, wiht strong falls in particular recorded in sales and profitability. The latest fall left the profitability indicator at its lowest level in the history of the index. For the year ahead SMEs were expecting further falls on all indicators.

A lack of work or sales remained the primary concern of SMEs this quarter with a large increase in concern levels. This was followed by the economic climate and cash flow.

Support for the Federal government’s policies fell a further seven percentage points in the last quarter. The key reasons SMEs gave for feeling that the Federal government policies worked against them included the carbon tax and a view that the policies were impacting consumer confidence and spending. Net support has not seen lower levels since the Keating Government.

Confidence was highest in the health and community services sector but lowest in the retail trade sector. Regional businesses were more negative than metropolitan ones about the current state of the Australian economy as well as more negative on where the economy will be in one years time.

In terms of planned activities – 22% of business owners said they wanted to personally work less in the business, 18% said they were looking to seek professional assistance to grow and 17% said they would sell or close the business during this financial year. Interestingly 38% planned to increase their digital presence and 26% said they wanted to introduce to increase their social media activities.

Apple announced this week that Steve Jobs had resigned as CEO. Steve Jobs is the creative genius behind the technology company and it’s public face. The announcement seemed to catch many off guard. The media is speculating about what will happen to Apple’s stock and the company’s future. Fortunately, the company had a plan in place.

In its announcement, Apple stated that “Jobs submitted his resignation to the Board today and strongly recommended that the Board implement its succession plan and name Tim Cook as CEO.” That is exactly what the Board did and Mr. Cook is now the CEO of Apple. What is important to note is that Apple had a succession plan in place in the event that Mr. Jobs died, resigned or could no longer serve as CEO. Unfortunately, many companies do not have a succession plan in place. Not having such a plan in place can lead to disastrous results, including the failure of a business

Only a reasonably small number of respondents to the 2011 Family Business Survey planned to hand on their business to the next generation – many will shortly find how difficult the succession process can be to implement – respondents were asked to rank a range of matters in terms of their likely effect on the succession process both from within and outside the family.

The research shows the big four succession issues are:
• the ability to generate adequate financial returns
• the financial capacity to retire
• trust in the abilities of the potential successor
• potential successors’ interest in the business

Interestingly, we have previously discussed the effect of the GFC and anecdotally have seen business owners hold off on an exit plan which might have been undertaken over the last three years – 29% of survey respondents listed the impact of the recent downturn as having a negative effect on the succession process.

Having reviewed the potential complexities it was not surprising that many respondents appeared to have avoided formal succession planning:

Yes Work in Progress No

Management 26 30.5 43.5
Control 23.5 28 48.5
Ownership 28.5 25.5 46