Family businesses should ideally start the process of succession planning at least five years before the transition is made, accountants Staples Rodway say.Family businesses were estimated to represent 75 percent of all firms in this country, providing ar
Family businesses should ideally start the process of succession planning at least five years before the transition is made, accountants Staples Rodway say.
Family businesses were estimated to represent 75 percent of all firms in this country, providing around 80 percent of all employment and 65 percent of gross domestic product. They often had long-term perspectives and altruism that were beneficial to both the business and the community.
But most only had a life cycle of 24 years, with research showing that only a third of family-owned businesses handed over to the second generation, and less than 20 percent to a third generation, Staples Rodway senior manager Tracy Hickman said.
"The failure to transition many family owned businesses to the next generation is depriving our economy of the productivity, employment opportunities and long-term perspective that those businesses can provide."
A succession planning process would enable identification of likely successors, or professional management until the right successor could be found. It also gave the owners enough time to work out an equitable course of action if the business was unable to support all their offspring, Ms Hickman said.
"Starting the process early allows time for sufficient training, and will give finance providers greater comfort that the transition will go smoothly. Statistics show that family businesses that have prepared a succession plan tend to experience an easier transition and not experience a drop in performance when the successor takes over."
Ms Hickman said that good governance could help with decision making, and in the event of business disputes that risked affecting family unity.
"An independent director can undertake performance and remuneration reviews of family members, both areas which are open to disputes. Conflict resolution can also be addressed by using formal shareholder agreements in a family business, particularly where siblings or cousins are in business together."
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