Family business owners doubt their kids can run the business: KPMG survey reveals

Family business owners are concerned about the ability of their children and relatives to take over once they move on, according to a new survey released by Family Business Australia and KPMG.

The survey of 700 businesses found that 57% are concerned about the motives of their successor, and that 63% are concerned about the ability of their successor to handle the business. However, over 60% say keeping the control of the business within the family is still extremely important to them.

Family Business Australia chief executive Philippa Taylor says the growing number of businesses that are concerned is actually a good thing, as it shows awareness of the need for succession planning.

“We’ve been doing research with KPMG for nine years and we have find that when we first surveyed businesses, 60% thought they would be exiting this decade and only 23% had a plan. Then two or three years later that had increased to 27%.”

“We know that businesses are going to be transitioning soon because Baby Boomers have started these businesses and are now starting to retire. But many are concerned about what is going to happen and how that will affect the values of the company.”

The survey also found that the future strategy of each business was ranked as the most likely cause of conflict within the family, and that 24% expect to pass the business on to the next generation in the next five years.

Taylor says it is crucial that family businesses address the issue of succession as early as possible in order to not only prevent internal trouble that can derail the business but also to ensure the subsequent tax impact is low.

“Succession should not be an event, it needs to be a process. It means the people who are prepared to take over have been so for a while. One of the reasons we find that family run businesses have a better return on investment is that they have a good culture.”

“It’s important for the next generation that they follow that culture and keep the family business at a competitive advantage.”

Taylor also says for businesses, the sooner they start the succession plan the easier the taxation process will become.”

“From a financial point of view, transferring equity early on can help manage the process. It’s pretty awful to see the family arguing over who will run it after the fact, and we’ve seen some fantastic case studies where people have had to deal with that because there was no succession plan.”

“It can implode the business.”

Taylor says while many businesses think they may be too small to have a board, the benefits “have been proven beyond doubt”.

“The biggest problem is that people equate family businesses with small businesses, and they’re not. The sweet spot is about $30 million, we’re talking about some of the more substantial businesses here. Not necessarily the Mum and Dad stores.”

Bill Noye, head of the KPMG family business practice, says that while family business owners want to protect their business, that doesn’t disappear when a succession plan begins to come into play.

“This survey, exploring current thinking of family entrepreneurs, is highlighting that the motivations for succession are often impacted by the ambiguous nature of relationship with children and other family members.”