For a business owner, passing on the business to the next generation can be a hugely rewarding outcome for their lifetime of hard work. When it’s done well, that is! The flip side, when it’s not managed properly, can lead to family rifts and disappointment.
A planned and well-managed process – particularly a ‘staged transition’ – offers the best chance of success. KPMG’s Enterprise team share their top tips for successfully passing the baton.
Families often have topics they avoid talking about, for whatever reason, but the family business shouldn’t be one of them. One thing is for certain – the business owner will one day step aside, and ‘someone’ will have to take over.
So it’s important to have open and honest conversations about where individual family members see their role in the future. Making assumptions is always risky. If your family are not fluent communicators – or the topic is particularly sensitive – you might want to get a trusted third party to help facilitate those discussions.
This is related to the above. Putting timeframes around the succession plan, even very general timeframes, will help everybody prepare for the future. It’s also an opportunity to specify regular review periods, so you can ensure everyone is still on the same page.
Again, it can be a good idea to involve an independent adviser. Roger Wilson, a Partner in KPMG’s Enterprise team, says this is an important step for the family.
“They are letting someone into the ‘inner sanctum’ of not only their business, but also their family relationships. As advisers, we appreciate that our clients have entrusted us to take on this role.”
While some business owners are reluctant to let go – the next generation may not be ready to fully step up. In these cases, says Roger Wilson, a staged succession process can be a great solution.
“This is where a management succession plan is rolled out first, prior to the ownership succession. It’s less intimidating for both parties, and it allows the successor to feel more comfortable getting their ‘feet under the desk’.
If all is going well, the incumbent can slowly move away, while the successor moves into a fuller management role. There is less risk for the business owner, and their successor is given an opportunity to prove they can perform.
In fact, succession can be staged across all areas of the business – operations, management, governance and ownership. This allows family members to step in and out of the business at various levels.
For example, the outgoing generation may choose to retain a majority shareholding and a seat on the Board, but step aside from management and operations. Alternatively, children who want to pursue other careers can still contribute to governance and have a shareholding.
“Succession doesn’t have to be all-or-nothing,” as Roger points out.
“Having a clear division of roles in the business can allow everyone to stay involved and contribute in the way that suits them best.”
You’ve heard it before, but we’ll say it again: it’s never too early to get started with succession planning. That way, you can take all the time and space you need. The worst-case scenario is being forced into an ‘overnight succession’ when your family and/or business is facing some kind of crisis.
“Communication and good planning are your two biggest assets,” says Roger.
“For a business owner, there’s nothing more satisfying than seeing your next generation poised and ready to continue the legacy.”
Need more advice?
The KPMG Enterprise team would love to help your family successfully navigate the succession journey.
To find out more, drop us an email on SmallBusiness@kpmg.co.nz or give us a call on 0800 576 472.