Article Your family business: set for languishing or longevity? 30 January 2023 Read time: 5 min Author Charlotte Whelan Expert Reviewer Lachlan Ezard, CPA It’s no secret: we love looking under the hood of businesses and getting to know who’s in the driver’s seat, learning what fuels them, and working together to turn their vision into a reality. One of those ‘under the hood’ considerations is long-term planning and considering ‘business longevity’. Keeping it in the family: exploring business longevity. Recently, we posted some thoughts around longevity. The discussions that followed springboarded us into a more nuanced area of long-term business planning: what longevity means in the context of a family business. Let’s look closely at family businesses, which account for 70% of Australian businesses and employ around half the country’s workforce. Family business storytelling: conflict, fragility and the ‘three generation’ rule. Okay, so when we talk about family business, images of The Sopranos (television’s greatest masterpiece, are we right or are we right?) might spring to mind. Perhaps you’ll think of Succession. Or dare we say it, The Kardashians. Whether you’re watching mafia, media moguls or reality royalty, these stories all follow the same premise. They are stories of family business conflict playing out publicly and to disastrous effect. These examples portray family businesses as fragile. They’re shown as more volatile than other forms of enterprise; always at risk of succumbing to the ‘three generation rule’ (that old chestnut that says most family businesses ‘fail’ by the third generation). However, data actually suggests most family businesses last longer than large public businesses do. Moreover, these stories play into our assumptions. They make assumptions about the owners’ longevity intentions. That is, that your family business is meant to operate for generations to come, and if you shut shop, somehow you’ve failed. Not always the case. In fact, several organisations we’ve come across in our work have a planned and intentional ‘death date’ in their business strategy. So let’s get off the beaten path and explore some other considerations. Let’s get ourselves in a longevity mindset (or not) and deep dive into your family business. What does longevity mean to you? Do you want your family business to be your legacy and your family’s future? Or is this a stepping stone? Do you intend to pass your business on to offspring or family members, or to build it up and sell? Maybe you’ll just enjoy the challenge, revel in the creativity of doing something new and then wind it all up? When (and if) you plan to pass on the reins – are you certain your beneficiaries are on board? Many business leaders just assume their children will succeed them, without ever asking what their kids actually want. If you’re planning to sell, this raises broader considerations. Is your business is actually an attractive investment? Are your sales soaring? Your processes documented? Have you set yourself up correctly and strategically? Are your people on board and effective? Are you future-proofed? Is your business known by your family name? And if so – would you be willing to sell it or have it changed? In short: what do you need to know and do now, so a future buyer can easily consider your business and undertake proper due diligence? This vein of conversation is a beast in itself, but these questions should get you into the right mindset to consider what you really want from your family business. In the early days, are you protected against risk? When you’re in start-up land, risk is high (as is the potential for reward, of course). Make sure to get guidance before you jump into your business full-time, especially if you’re setting up shop with a domestic partner (related in some way with a combined household income, as opposed to siblings, for example). Map out best and worst case scenarios – how long could you make it work with one income or no income? There’s not much discussion to be had for longevity if you can’t get your dreams off the ground. We chatted about just this thing with Dereck Hales of Bad Shepherd, recently. Is there a succession plan in place? When a senior member of the business plans to step away, it can be an exciting and nerve wracking time. Anxiety might stem from a reluctance to relinquish control (successful type A-types? No way!). It can also come from concerns over the aptitude and readiness of the person next in line. For example, some successors graduate to senior positions through school of hard knocks. They might be great on the tools, a technical gun. But are they appropriately trained in the other skills required to drive the family business? Succession planning is a weightier time in the family business context, too. It’s not just uncertainty about longevity or the long-term future of the business. There are implications for the wealth, legacy and reputation of the family at play. Having an adviser who understands both your household and business can help make the time less treacherous for you and the team. Are you staying competitive with non-family businesses as time creeps on? Sometimes, family business owners are involved in company decision-making long beyond retirement (official in a board capacity, or unofficially). The ability to tap into decades of experience gives succeeding management a fantastic edge. However, it can also hamstring your business in some ways. Change is extremely hard for a generation that has worked, with great success, in a particular way. For example, one company’s senior generation might make it clear that they have no interest in changing their governance structure. Or that other core operations aren’t to change as long as they’re still alive (thank you very much!). Of course, as other key staff, technology and the industry moves on, this can cause problems. It can make you less competitive than other businesses in the area you play. This will need to be factored in and worked through, stat! Is your situation sustainable (and enjoyable)? When your #workwife and your wife-wife are the same person, things can feel very high-stakes all the time. Everyone needs downtime and a distinction between work mode and home mode. Practically this can be tough. We recommend trying to create boundaries however, around when and where business should be discussed. As well as protecting your own work and life balance, boundaries also need to be clear and fair for non-family member employees. Make sure they feel as though their input is equally valued. And, that their opportunities to grow within your company are not limited either. While this point doesn’t directly speak to longevity, it’s a) an important welfare check for hardworking family businesses. And b) in the long-term, the family dynamic needs to be sustainable. Your entire team need to feel confident, empowered and valued, so they stick around for the long-term. Family businesses are the backbone of our community. They are the engine that powers the economy. They represent trust, resilience, success, hard yakka and personal satisfaction. Generation after generation, family businesses keep our country going and growing, and we’re grateful for each and every one of them. At Kearney Group, family business is at the heart of what we do. We’d love to chat about yours, and join you and your family on the road to success with financial planning and long-term business strategies from our integrated advice teams. 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