Around 70% of Australian businesses are family owned. That’s a staggering number. Some of these businesses will eventually either sell to unrelated parties or wind-down. Others will want to keep the business in the family, with the next generation ‘inheriting’ the business owner reins.
‘Inheriting’ a business presents an abundance of opportunities. The next generation already has an in-depth knowledge of the business and customers/clients, but comes in with a fresh approach on how things can be done differently. In today’s world of fast-moving technology and continual innovation, this often means there is room for a lot of change and improved processes.
Succession planning is often a difficult topic to discuss with our clients. Even though the older generation wants to retire and the younger generation wants to take over the reins and feels they are ready, it’s often hard for the older generation to ‘let go’ of a business they’ve built and operated for many decades. They’re worried about whether the younger generation will be ‘ready’ to take over the business, and often they find it hard to completely ‘let go’. Succession planning is a conversation that needs to be had early on, and planning for it takes many, many years. Whilst difficult, it can be done successfully and the business can become much stronger, ready to tackle the next years ahead.
Growing up, I had a friend called Julia. Her parents had owned a mini supermarket for the last 15 years on the northern beaches of Sydney, and every day after school she would catch the bus to her parents supermarket to help them. She used to tell me her parents were always stressed as they never felt they were making enough money and would complain that their costs were too high. Once we finished school, and moved onto our own careers and life got busy, we lost touch. I bumped into Julia at a friend’s wedding on the weekend, and she told me she was now running her parents’ mini supermarket. The mini supermarket was not so ‘mini’ anymore, and she was running a profitable and efficient operation. The transition to and handover of the family business took five years. We spent some time talking through some of the key processes she undertook and considerations when planning for business succession.
Some of the key learnings are as follows:
- Determine whether the next generation wants to take over the family business reins. Too often the older generation assumes that the younger generation wants to inherit the family business, but many times they don’t. They need to have a passion for the business for it to continue successfully.
- Start planning early. Once you determine that the older generation wants to exit, and the younger generation wants to inherit the family business, put a plan in place. The transition period, just like in Julia’s story may take a number of years. Under the plan, include the gradual transition of responsibilities and decision making, and a phasing out of work responsibilities for the older generation.
- Review the business – product/service offering. When Julia started the succession planning process for her parents’ mini supermarket, she undertook a review of the business with her business advisor (at Dexterous we are experienced in this, and have done this for many of our clients). They identified that consumer preferences had changed, and there was demand for locally made natural and organic produce, and gluten-free options and sugar-free options. She embraced this new offering and started improving the business to satisfy changing customer preferences.
- Review the business – embrace technology. One thing that had frustrated Julia the most about her parents business, was that she felt they were using a lot of old and outdated systems. There were much faster systems they could be using, which could cut down a lot of her parents ‘working hours’ at the supermarket, and make the business a lot more efficient and profitable. She integrated some new technology systems at the supermarket, including
- A new inventory management system – which alerted her when inventory levels were low and it was time to reorder. Previously this had been done manually.
- A cloud-based accounting system – her parents had previously been using an old version of a desktop accounting software package. They hated the time it took to enter all their transactions, and they were manually entering each bank transaction into the accounting system. This was taking them hours each week. Further, under their old accounting system, payroll was taking a long time as they had to manually calculate staff pay, and staff were receiving their pay slips in printed form. Staff annual leave balances were still being recorded in an excel spreadsheet. Under the cloud-based accounting system, payroll processing became much more efficient and less manual – you can read more about the benefits of cloud-based accounting in our previous Dexterous blog post here.
- After you have made changes, evaluate and never stop innovating. Spend some time evaluating the changes you have made. What has been their impact? Can you continue to make improvements to strengthen the business. Put a plan in place to always innovate in your business, and stay ahead of new technology and trends.
Succession planning is a great time to take a good, hard look at your business and make it better. If the process is done well, it can present a breadth of opportunities for the business. If you are thinking about succession planning for your business, start early. If you need help or want to chat about where to begin, feel free to drop us a line (02) 8072 0695 or send us an email. We have helped many businesses transition successfully to the next generation.