When it comes to succession planning, many challenges family business owners face stem from the fact that the next stage of their life is unknown. There’s a reluctance to hand over the reins because they simply don’t know what’s coming.
How will the family business look without them at the helm? Do future generations have the necessary expertise to drive it into the future? Are they choosing the right person to uphold the family legacy? Can they maintain their current lifestyle post retirement?
These questions weigh heavily as family business owners grapple with the emotional and logistical complexities of transitioning out of the business. This emotional strain can’t be underestimated. For many, their business is an intrinsic part of their personal identity and self-worth. They’ve spent years, decades, even their entire working life building up the business, growing relationships and trust, and developing their reputation.
It often feels like an extension of the family itself, and stepping aside feels like they’re abandoning their life’s work—and losing their identity entirely. It can also be a concern that without the business providing a steady income, they won’t be able to afford to enjoy their retirement.
Making the decision to exit the business is a big move; deciding the successor is an even greater challenge. It’s a decision that can be fraught with angst and family conflict, especially if several adult children and other stakeholders are involved.
A 2015 KPMG and Family Business Australia survey found 80 per cent of business leaders experienced conflict or tension within the family, and succession-related issues were one of the top five causes. Sibling rivalry, isolating children not involved in the business, and pressure to continue the family legacy are all complicating factors.
But planning for the transition actively works to reduce these anxieties.
In fact, acknowledging a succession plan is required already puts the business owners in a better place than many other family businesses. The same KPMG study found one quarter of family businesses had no management transition strategy in place, and only 14 per cent had a documented plan for training a successor before the handover.
A strong succession plan allows family business owners the time to choose the right successor. They can work with the next generation to understand their vision and determine the right path for the business, and see that their business is in the best of hands.
It allows for the provision of safety mechanisms to ensure the business is protected should any relationships break down.
It also means they can start to plan their retirement before it becomes urgent, ensuring them the means to live comfortably once the business is no longer their responsibility.
And on a personal level, it allows business owners the opportunity to see there is a life for them after business. A strong succession plan acts as a strategic retirement plan, putting the mechanisms in place to ensure that family business owners are able to maintain an adequate income that allows them to enjoy the fruits of their labour.
So succession planning isn’t the end; quite the opposite. A strong succession plan provides comfort and clarity that empowers family business owners to feel like their legacy will live on, and they’re beginning a new, exciting chapter of their lives.
Director, Stephan Independent Advisory
Joe Stephan graduated in 2002 with a Bachelor of Business (Fin Plan) under the tutelage of his father (Program Leader of Financial Planning at RMIT University).
You will hear Joe bandy about the idea of “pure financial advice”, which is given objectively and focused around the needs of individual and not the internal needs of the business providing advice.
Joe is realising his vision every day through his Independent Advice Firm which he owns and operates with his brother James. Joe also spends a portion of his time teaching tomorrow’s Financial Planners at various Melbourne Universities including RMIT & LA Trobe.