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NEWS - PLANNING
Family businesses face up to succession
2/4/2003
Succession planning and staffing are the biggest issues facing family businesses.
In a recent Deloitte Growth Solution survey, nearly 30 per cent of business respondents claimed the area with which they needed the most assistance was ownership transition, whether through succession planning, a trade sale or initial public offer.
The issue was closely followed by concerns about strategic planning and marketing, at 23 per cent.
Mark Kagan, a director of logistics services company Kagan Brothers, had not given much thought to succession planning until he attended several conferences directed at family businesses.
But that was not the sole reason the 48-year-old decided it was time to plan for the possible exit of family members. His 52-year-old partner and cousin, Gary Kagan, had reached an age when he wanted to reduce his involvement in the business.
Succession planning exercises look at how to achieve that goal without affecting the company's growth. More personally, it addresses wealth-creation issues, such as how much capital Gary would need to live on.
Mark said it was important that succession planning was also discussed with senior non-family management.
Fuelling the concern about succession planning is the push by baby boomers to exit the businesses they have built up. "There's no doubt about that. It's a major cause and a massive amount of changes will occur over the next 10 years," said Bruce McMenamin, a director of accountants Horwath, which also targets the SME market.
Staffing is the other big issue facing family businesses.
In the Deloitte poll, nearly one-third of family businesses said the main barrier they faced to increased growth and profitability was the shortage of qualified management and staff.
"Owner-managers are reluctant to let go of control," said Walter Dinale, a partner in Deloitte Growth Solutions. "It's a constant education process to demonstrate that professional management can do a good job."
Deloitte's view is borne out by Horwath. When Mr McMenamin, asked delegates at a recent Family Business Australia conference what their main issue was, the consensus was staffing and succession.
"Delegates face the problem of employees being reluctant to join their companies due to unclear career paths, believing that family members barricade the way to promotion," Mr McMenamin said.
Tobin Brothers Funeral Directors has a senior management team comprising three outsiders.
Martin Tobin said recruiting non-family staff was not an issue. He said the managers had worked their way up the business after joining at a young age.
Mr Tobin said senior managers who joined the business directly could have difficulty working with family members if they were not aware of the business's history or family politics.
Kagan Brothers has a 27-year-old family member being groomed for a senior management role. But Mark Kagan said this was being done openly and in conjunction with management, so that it was not a threat to staff. Also, this particular family member had no guarantee that he would get the position.
Failing to deal with succession issues can also have huge implications for financial partners.
"Lending institutions will frown on family businesses that do not have a succession plan in place," Mr McMenamin said. In Horwath's experience, lenders want to know how the business will function after the departure of the hard-working founders, who probably worked more than 40 hours a week.
Mr Tobin said banks were becoming more conscious of succession planning, particularly when family businesses were looking for finance without having bricks and mortar as security.
Ultimately, the success of the business depends on the existing management team and how that success will continue if it is replaced.
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