Family business owners neglect exit planning: Report

Only 25% of family business owners consider selecting a leadership successor a critical issue, a new report reveals, prompting experts to highlight the importance of exit planning.

The MGI Australian Family and Private Business Survey, which surveyed 5,000 companies, was undertaken by RMIT University and supported by MGI Business Solutions Worldwide.

More than 30% of family business owner/manager respondents were aged 50-59, while 25% were aged 60-69, indicating the control of these businesses is vested in an ageing population.

Despite 67% of family business owners believing they will have adequate funds to live off when they retire, the survey suggests there is a worrying lack of exit planning.

Only one third of the family business owners surveyed feel their business is suitable for sale or to be passed on to a successor.

Alarmingly, just 25% of family business owners believe the selection of a leadership successor is a critical issue.

Meanwhile, less than two thirds of family business owners believe younger family members are not as interested in actively managing the business as older generations.

Sue Prestney, principal of MGI Melbourne, says very family business owners have strategies in place to “deal with a time when they will no longer be in control”.

“There are lots of reasons why this may be occurring – the impact of the global financial crisis, lack of motivated buyers [or the] time needed to undertake succession planning,” she says.

“It is crucial that the threshold of whether to exit via a sale or family succession is determined well in advance. This will enable the business owner to implement the most appropriate exit strategies.”

Prestney points out that preparing a business for a successful sale requires a different approach to preparing for a smooth family succession.

“Any decision should be in the best interests of the current owner and the family as a whole,” she says.

“It must also take into account the retirement funding required by the current owner, and whether the likely successor will be able to enhance the current value of the business.”

“Sometimes, the interests of the family as a whole will be best served by realising the current value of the business through a sale rather than risking that value by passing it to less able or less committed family successors.”

Either way, Prestney says it is imperative for all family business owners to undertake exit planning because it can help increase the value of their business.

Martin Nally, founder of hranywhere, says start-ups must continue to innovate and grow in order to stay relevant, or let someone else take over.

“You need to have a process where you’re not standing still,” Nally tells StartupSmart.

“The majority of start-ups don’t reach the five-year stage so, if you do, it’s the result of hard work. But you can’t rest on hard work.”

“You can’t wait for the plateau – you have to anticipate the plateau. Look for opportunities and have a whole series of things in the pipeline.”