January 2019 - As a family business matures, the next generation may begin to work within the business.
Effective operation to ensure a smooth transition is paramount during this period. The key tips below will help ensure the hands on operation and interaction between family members is effective and promotes sound business operation.
The Australian Small Business and Family Enterprise Ombudsman lists 10 key tips for running family enterprises:
Leave work at work and home at home.
Have clear roles for each family member.
Pay the award rate to all family members who work there.
Use outside advisors for unbiased advice.
Have a good management structure however don’t confuse ownership or inheritance with management.
Be open with communication - both good and bad news must be shared.
Clearly outline the entry and exit conditions for family members involved with the business from the beginning.
Develop a succession plan and make sure that all parties agree on the transfer of ownership.
Hold regular meetings and family ‘retreats’.
Use mentors and family business forum groups as a sounding board.
Four simple strategies that encompass all of the above can be implemented to strengthen the operation of any inter-generational business and management transition:
Develop strong estate planning documents, such as wills, superannuation and life insurance policies, letters of wishes, as well as documenting and outlining current business plans, goals, and transition strategies. This can often be documented through a family charter.
Training and Education
Provide internal and external training and education, along with clarity about the competencies family members should understand prior to undertaking any senior duties.
Appoint a trusted external advisor and mediator, such as an advisor board member.
Implement clear governance policies and structures that outline boundaries between family and business. It is critical to separate two key transitions within a family business, despite them often being combined in a business sale. These are the transition of:
The most senior decision-making role.
Ownership (and control) of the business.
Whether you are new to a family business, or an old hand looking for a new approach, your Cutcher & Neale Client Advisor is here to assist.