Keeping it in the family - small business succession planning
But things didn’t run as smoothly as he’d hoped at Centenary Hire in Brisbane. That’s why the father and son duo developed a succession plan for their small business.
“For the first twelve to eighteen months, it just wasn’t working; Dad and I were just banging heads and we weren’t really fighting, but it just wasn’t nice,” says Gordon, 37, now the company’s general manager.
They realised that succession planning was a more complex task than the two of them could undertake on their own, particularly as emotions got involved.
“We’re not overly emotional people but the problem is, when someone like dad has built the business from dot, his identity is tied to the business and the business is tied to his identity,” Gordon says.
They took on a business coach to help them plan the succession and came up with a stepped timetable of things that would occur in the lead up to Michael’s retirement at 60. Three years ago he handed over the reins to his son.
Succession planning can be a difficult time for any family business.
Finding out who wants what
The younger generation might have their own ideas about how things could run better and might be chomping at the bit to take over from a founder who is reluctant to let go.
Alternatively, the younger generation might be unwilling to take on more responsibility while the older generation wants the business to remain in family hands.
Another cause of tension can be that the founders want to hand over management but retain ownership to fund their lifestyle in retirement.
Adding to the complexity are the usual family dynamics and tensions between parents and children, and between siblings.
The first step in creating a succession plan is trying to find out what everybody wants out of the business and how much involvement they want in the business.
These include issues such as when the current generation wants to retire and whether they want a complete retirement or some ongoing involvement, such as sitting on the company board or acting as an advisor. Likewise, what sort of roles do the next generation want, or do they not want any involvement at all?
There are also the issues of ownership – management transition is often distinct from ownership transition.
Do the older generation want to retain the business as investors and when do they want to give or sell it to the next generation? And how should those family members who aren’t involved in the business be compensated?
These are all difficult issues, so when the discussions get underway, it is a good idea to get in external advisors who can keep the discussions focused and on track.
The business’ accountant can be a good starting point or Family Business Australia can provide accredited facilitators to help with the succession planning. Certainly, when the discussion comes to ownership and transfer or sale of the business, an accountant should be involved in order to provide advice on the most tax-effective way to do this.
What’s in the succession plan?
Once all of the objectives have been established it is time to prepare the succession plan itself. You might work with a professional on this, but if you decide to go it alone, the government publishes a succession plan template and guide which you can draw on.
The succession plan should outline the various stages of the current generation’s retirement. Rather than just walking out the door, they might relinquish duties to other family members bit-by-bit over several years, training them as they go.
There are no hard and fast rules about what should go into a succession plan or how detailed it should be, but things to consider include:
- A succession timetable – setting out key milestones
- Key personnel – who they are; what their roles are; when they retire or take over; any training and experience the new generation will need to take over
- Risks – look at the risks involved in the succession plan; what are the things that could go wrong and what is Plan B if they occur
- The finances – how does the ownership or finances of the business fit in with the succession plan? What sort of payments or income are the retiring owners expecting?
Centenary Hire has successfully executed its management succession plan and some time in the future will plan the ownership succession.
In the meantime, says Gordon, “everything is working really well.. Dad has an office on the premises and it’s great, because he’s here as a sounding board or a go-to for us”.