Only about 30% of family-owned businesses survive into the second generation; 12% are still viable into the third generation. Only about 3% of all family businesses operate into the fourth generation or beyond, according to research by the Family Business Institute.
Imagine the British Royal family as an Australian family business. Mum Elizabeth (87) is the entrepreneur; the business is her baby and she has worked almost her whole adult life in the business. It would not be easy for her to hand the control to her son Charles. Charles is now 65 and heading towards retirement age. He too has worked his whole life in the business. But at age 65 he has still not been given the chance to lead the business and do things his way. Charles’s son William, now 31, has also started in the business. Having watched his father take second place all his life, it would be understandable if William wanted a career and success in his own field ? perhaps even his own business.
A smooth transition
What could this royal business do differently? The business can’t afford to lose all Elizabeth’s knowledge. Nor would it be wise for her to simply drop the reins and disappear. A mentor program that encourages Elizabeth to share her knowledge with Charles would make Elizabeth feel an asset while giving Charles the tools to carry on the business. It would give Charles a better understanding of what his mum is trying to achieve while at the same time fostering respect for each family member’s different style.
Sometimes during a mentor program, the business owner decides a different family member, or even someone outside the family, is more suited to taking over the reins. This is better realised and discussed before the business owner’s death.
A life outside the business
Businesses can be all consuming and it’s not always easy to retire. Working a lifetime in a business without other interests can contribute to fear of change and the unknown, causing the entrepreneur to hang on for longer. To make it easier for Elizabeth to let go, she needs an interest outside the business.
Positive role models
William, the third generation, needs to be given a positive introduction to the business. If you want to get the best from the next generation, you need to make your job appealing enough for the next generation to want your job. If you’re swamped under paper, never go on holidays, work hard but have little or no say in running the business, why would the third generation want to join the business?
A sound succession plan
Poor succession planning and holding onto the reins too long often leads to a lack of interest by other family members in the family business. This can result in future generations finding their own career path rather than following in their parents’ footsteps.
Like all business owners, both Elizabeth and Charles need to be educated about the importance of succession planning. A succession plan can take 5 years or longer to put in place, so you need to take action early. Without a succession plan, your business could lose a lot of money or even dissolve completely.
Written by Kristen Taylor-Martin
Kristen Taylor-Martin | Grant Thornton
Kirsten is a Client Director in the Business Advisory and Consultancy division and has over 20 years accounting experience. Kirsten specialises in developing Governance Structures and Succession Plans to ensure family businesses grow for generations to come. Kirsten is an Accredited Specialist Advisor member with FBA. A Fellow with the International organisation Family Firm Institute. Kirsten is a regular international speaker on all aspects of Family Business. She is also a published author in many publications and runs a Keeping it in the Family Podcast Series.
The views expressed in this content are those of the author, who is also responsible for any errors and omissions. Family Business Australia and New Zealand provides this article for your information only. The content of the article should not be taken as advice. If you wish to explore this topic, please consult an advisor who you consider to have the expertise to provide specific advice in relation to your family business.