Australia is about to face the battle of the bulge when it comes to intergenerational family business succession, writes Chris Tsovolos.

Within the next 10 years close to four million retiring baby boomers will take part in the largest ever exodus from the Australian workforce.

And with close to two thirds of Australia's 2.1 million workplaces classified as family owned, just how orderly this demographic bulge of boomers exit their businesses could have a profound impact on our economy.

With over 80 percent of family business owners looking to exit in the next decade, Australia is facing an estimated $3.5 trillion transfer of wealth.

Given the average family business has a $12 million turnover and 37 staff, the mishandling of just a fraction of those handovers can not only lead to significant financial loss for numerous families, but also reverberate to the wider economy.

The international evidence suggests a large number of those local family business successions could be chaotic, messy and all too often, just plain litigious. More than 80% of US-family run businesses do not have a set succession plan in place.

Unfortunately Australia shares three characteristics of the poor US dynamics.

  • As a family we don't talk about this: Too many family business succession discussions are forced in that parents not wanting to inflame sibling rivalries leave it to the last possible moment to work through. A crisis, such as a major illness, is often the catalyst for a discussion that is by then often too late.
  • Blended families: Longer life-spans, divorce and remarrying have made family dynamics increasingly complex and conflict-ridden. A determined 'campaign' by one family member or an in-law to get what they see as their share can cause significant friction in the planning process.
  • Knowing when the time is right to step back: With life-expectancy increasing, disputes are becoming more inter-generational. Adult children seeking to gain control of what they see as a rightful inheritance from their parents who can be reluctant to let go, bumps up against grandchildren's desires to build their own independent investment base.

All of the above and almost every other scenario in family business succession, have the common accelerant of emotion.

For anyone who has dreaded bumping into a former business partner at an event, consider the challenges of every birth, death, marriage or dinner being a potential flashpoint in a family succession dispute.

A successful family succession plan then typically starts well before a hand-over is on the horizon and before emotions run too high. The added benefit this brings is providing time for a stewardship to occur across a period of time during the succession period.

This not only assists in decreasing future costs and potentially avoiding costly Court disputes but also helps maximise the protection of all the family assets along with taxation structuring opportunities.

A Macquarie Bank survey of over 2000 family business owners highlighted they place a premium on expert advice. In the succession process that independent advice is not only essential to understand the options and pitfalls, but also to act as an emotional circuit breaker.

The role of a family business succession advisor is often to assist the key family members in navigating the emotions and the web of family issues that can otherwise derail a family business succession plan. Often dealing with these issues is equally as important in dealing with the legal and taxation issues that are involved in the succession strategy.

Whilst often business succession planning means leaving everything in the family – that may not always be in the best interests of the family or the business. Many successful family businesses have recognised the benefit of separating ownership and control as part of the family business succession strategy. This allows getting the right people in the right role.

This can also include incentivising key employees to stay on board and looking carefully at the skills and capabilities of family members is key when deciding who is best to take over.

Leaving any decisions to chance could have massive implications for the future of a family business and also lead to the significant loss of the family wealth, as well as having serious consequences for employees.

And as Australia goes through its biggest ever demographic handover of family business wealth, getting it wrong time and again could have a far wider impact on us all.

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