Family-owned businesses facing leadership crisis and ignoring succession plans, new report reveals

Family businesses are facing a leadership crisis, a new report conducted by RMIT University has found, with only one-third of respondents saying they felt their business was in good enough shape to be handed on to a new owner.

The report also found that despite the flow-on effect of the global financial crisis, a quarter of family business respondents have been approached about a sale.

The report, which was undertaken by RMIT University but commissioned by MGI Australia, surveyed 5,000 Australian family-owned companies. The report is the seventh in its series.

The report found that although 61% of owners said they will have plenty of plans in retirement, and 67% said they had adequate funds, only one-third believe the business is ready to pass on.

That challenge is made even more difficult by the fact just under two-thirds of owners suggest the younger generations of their families are not interested in actively managing the business.

There was also a lack of awareness from business owners about the need for succession, with only a quarter suggesting they had considered selecting a leader as a critical issue.

The results found that 33% of family business owner-manager respondents were aged between 50 and 59 years of age, while 25% were in the 60 to 69 years of age bracket.

MGI Australia principal and executive chairman Sue Prestney said that although strategic planning is crucial for family-owned businesses, too few of them actually do it.

“Although family business owners are signaling that exit planning is required to address the longevity of their businesses, very few of them have strategies in place to deal with a time when they will no longer be in control,” she said in a statement.

The report’s findings echo a similar study from Family Business Australia and KPMG, which found that the majority of owners are concerned about how their businesses will carry on once they’ve moved on.

Prestney says a variety of factors play into the recent trend of ignoring succession plans, including the impact of the financial crisis, a lack of buyers and the actual time needed to put through a plan.

However, she maintains a need for a succession plan is crucial to running the business successfully.

“It is crucial that the threshold issue of whether to exit via a sale or family succession is determined well in advance of the desired exit date.”

“This will enable the business owner to implement the most appropriate exit strategies for the particular exit option. Preparing a business for a successful sale requires a different approach to preparing for a smooth family succession.”

Sometimes, she says, that can be through a sale. The report suggests a quarter of businesses have been approached about a sale, and Prestney says this can often be a good choice if it helps the family as a whole.

“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.”

However, the number of owners considering a sale has fallen, from 75% in 2006 to 61%.