How many SMEs will pass on leadership to the next generation?

In the 2018 KPMG Enterprise and Family Business Australia survey, 60 percent of respondents said they plan on passing the leadership of their business onto another family member.

However, handing down the family business from one generation to the next isn’t as straightforward as it may seem – and you’ve got to start early if you want to put the “success” into succession.

Failing to plan…

At the age of 75, Jeffery John Leach, founder and chairman of JJ Leach Group, is still fit, healthy and passionate about his business. But while he has no immediate plans to hand over the reins, he has been working on a transition-of-leadership strategy for the past five years.

It may seem like a long time, but as KPMG Enterprise Partner Bill Noye points out, “succession is a process, not an event” and it takes a lot of preparation.

As part of the KPMG Enterprise Business of Family Series, Noye and KPMG Enterprise Associate Director Richard Cooper are running a masterclass on the transition of leadership and ownership within family businesses.

“The biggest hurdle a family needs to overcome is recognition that there needs to be a plan,” Cooper says. “A plan that considers the views and core needs of individual family members, whether they are active in the business or not, that sets clear expectations on family members, and which is in the best interests of the family and the business.

“Succession and succession planning also benefits from having a family governance structure in place,” Noye adds. “So having a plan, having governance frameworks for family and the business, and having time to prepare the next generation for the role of leadership and ownership – all of these things are really important.”

Sign up to the KPMG Enterprise Business of Family Master Class series to build the skills to balance the needs of your family and your business.

Get your MICE in a row

It’s not ducks you need to get in a row for successful succession, but MICE. That is, Management, Income, Control and Equity – each of which needs its own transition strategy, Noye says.

Family control and influence on the business are particularly important for socio-economic wealth, which measures the non-financial, ‘emotional’ value of a business and is a major factor in its long-term sustainability and success.

Unfortunately, when it comes to documented plans for leadership and ownership succession, only 17 percent of respondents in the KPMG survey had a unifying strategy for how the family would participate or be recognised in the business going forward.

Worse still, 54 percent had no retirement plan for the current CEO or Managing Director, and 43 percent had no training in place before a transition.

Not so at JJ Leach Group, where Jeff’s son Christian is working hard to earn his place at helm.

“Christian is now completing his Bachelor of Commerce, specialising in property, which will be another three years, and then he’ll have a full-time role running the show,” says Jeff. “In addition to that he’s project-managed pretty big developments for us, so he’s very capable and able to do the job – he just needs a bit more experience.”

Just in case he doesn’t feel ready to take over when the time comes, there’s a contingency plan: a trusted, external interim MD who can assist in a mentorship capacity and help keep things running smoothly.

“I see the business as Jeff’s baby, and we all agree that you can only take over if you are capable and trained and you know what you’re doing,” Christian says. “I think that’s really important – not to just expect to get the role, but to earn it. Otherwise the business isn’t going to keep growing.”