Family Dynamics Have Changed Business Succession Planningby
In years gone by, family elders handed down the business' reins to younger generations in an expected rite of passage that was simple and unstructured.
But not any more.
A new study by Baker Tilly International, in cooperation with Baker Tilly Pitcher Partners Consulting Pty Ltd. and Swinburne University of Technology, both in Melbourne, Australia, reveals that succession planning is fraught with uncertainties and changing expectations. Family dynamics have changed, the kids no longer are assumed to be stepping into the family C-suite, and many businesses now operate in a global economy heavily influenced by the Internet and digital devices â and that has changed consumer preferences, too.
Yet, for all that, only 15 percent of baby-boomer business owners worldwide have completed succession plans, according to the report, Succession Reset: Family Business Succession in the 21st Century. Boomers comprise between 15 percent and 30 percent of the global population and control many of the private businesses.
In the United States, four out of five family-owned businesses are not ready for succession.
âMany of these businesses may be small, but as a group, they are a global powerhouse all living the same transition,â writes Richard Shrapnel, an executive director and partner at Baker Tilly and author of the study. âIn five-plus years, trillions of dollars worth of businesses globally will have shifted into the hands of new managers and owners.â
So how have the family dynamics changed? The time-honored image of family harmony as the business passed hands has been replaced by the negotiating table âwithout any guarantee of the business remaining in the family,â writes Shrapnel. âIndividual freedoms and choice outweigh any sense that succession is a family obligation carried by the children. In many instances, this era of freedom and individual determination has created an environment of uncertainty where the current family business owners do not know whether their children may have an interest in the business, and if not today, then maybe sometime in the future.â
And that's why the study reveals that many family business owners believe selling the business is an option.
Despite these changes, family business succession planning is doable â it's just done differently.
It's an issue of âtransgenerational entrepreneurshipâ and knowing that the business could evolve into something new, according to Shrapnel. âIt may not be the same business, but the values that made it successful will be transferred into new business opportunities, and the wealth of the family will continue to be built. Their growth comes through multiplication, not division; they continue to grow and compound and not divide and separate,â he writes.
Starting the succession-planning process typically relies on three triggers: an advisor's recommendation to get going, the elders' readiness to step back, and the next generation's readiness to take over.
Those business owners who had completed the process revealed six goals for the succession plan, in the following order:
- Business continuity.
- Family harmony.
- Ongoing jobs for employees.
- Keeping the business in the family.
- Leaving a legacy.
- To sell the business at the best price; but that became less important as the succession plan progressed.
These eight principles can guide business owners and families in developing a succession plan.
- Succession is not retirement.
- Start with readiness.
- Determine goals before the journey.
- Harmony is a must.
- Price is not first.
- Plan early; start earlier.
- Equality is not equal.
- Ask before you get lost.
The study is the result of four years of research, including interviews with 77 people in 49 families and a survey of 2,650 business owners across 55 countries.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.