Posts Tagged ‘Family Business’

Recent work with clients has again highlighted the need to coordinate business succession planning and estate planning to achieve client outcomes. Much of our work is focused on identifying and then maximising business value and wealth - we are often able to dramatically improve business valuations by improving business performance through benchmarking and implementation of employee share plans and incentive schemes to attract, motivate and retain key people within the business. The ability of business owners to focus on a small slice of a much larger pie contributes dramatically to the asset that is their business wealth. By utilising family wealth planning strategies at the same time we are able to protect that wealth and as we extract wealth from the business it can be invested externally to maximise returns. For many business owners the diversification into other asset classes is totally new – much of their wealth is often tied up in their primary asset - the family business – this change alone can have a dramatic effect on wealth planning.

The addition of estate planning tools to protect wealth and importantly to provide the two outcomes we most regularly hear from clients – continuity and ongoing success of the business ( including its employees) and providing for future generations – provide business owners with a coordinated succession and estate plan and ultimately peace of mind.

As we work through Succession plans with clients we often see roadblocks or at least stumbling blocks appear – and often not where you would expect. For example, once your business strategy is in place - the business model, marketing, funding etc., success largely depends on relationships. That is to say relationships with suppliers, customers, staff and other stakeholders.

Relationships require maintaining and energising. Central to this is the managing of expectations. People come to expect certain behaviours in certain situations and are generally averse to sudden change.

Along comes a new manager or owner, perhaps from a different generation with different values beliefs, behaviours and norms. The possibility of uncertainty and suspicion entering the picture is relatively high during business transition. This can destabilise your business and cost money if not handled correctly.

The key is communication. In any Succession Plan, an important part is the consideration of who will be affected by changes that are happening, how they will be affected and how to deal with this. Different strategies will be needed for different people and areas.

One of the clients we worked with had a very successful business in the textiles area – started by his grandfather, now run by the father ( in his seventies ) and was in the process of being handed over to the son ( who had worked in the business all his life ) . His son took over and didn’t have (or make) time to sit down with staff and chat about what was going on. He did however make sure he emailed everyone and told them his door was always open – unfortunately staff were not used to this and so no-one walked thru the door. This raised all the little issues his dad used to handle easily. – The father had a habit of coming into the office and sitting on each person’s desk and “having a chat” – about the weekend, the kids, sport etc. In the process staff inevitably discussed any business issues they were having with him in a casual way – but he knew everything that was going on in the business and was able to handle small problems quickly and easily.

The son’s approach is not necessarily wrong, but the staff needed transitioning from one approach to another.

Succession planning is a lot more than a financial transaction !

Richard Pratt’s strong succession plan has been supported in several media articles today, with most praising one of Australia’s most successful businessmen for his foresight and planning in implementing a detailed succession plan ( at least five years ago ) to ensure his business was not consumed by restructuring at the time of his death.As explained by smartcompany.com.au:
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According to some recent research by AXA and Monash University, family business and succession are not always a healthy mix – in Victoria alone of third or forth generation family businesses:

• 33.7% Have a succession plan for the future ownership of the business
• 15.6% Have an ownership succession plan in writing
• 9.4% Have an ownership succession plan implemented

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