By Louise Thomson and Irena Malley

The majority of people reading this article would know at least one person who owns or works in a family business – it is a business structure that is very much ‘close to home’.

Family businesses are run by two or more family members with the intention of passing on ownership to the next generation. They make up over 70% of businesses currently operating in Australia, yet only 12% of these successfully operate into the third generation. Family businesses are clearly struggling with achieving longevity and the majority are only experiencing short-lived successes.

This can be attributable to three main factors.

Lack of financial education

Children born into either wealthy families or families with family businesses often work with little business knowledge or financial education. They begin their careers at very young ages ‘while working their way up’ often without being required to achieve some form of qualification. This can lead to poor decision-making and ill informed conclusions being made about the business, in particular its future, thereby threatening the business longevity.

Neglecting family capital

Family capital is a term that encompasses the sense of stewardship and obligation placed on younger generations. This is necessary to help maintain the family business. Without family capital been given the appropriate attention and accent, those minds of the up and coming family members, especially those given the responsibility of succession, may likely experience a lack of determination, respect and regard for the importance of their own roles in carrying forward this family business.

Failure to overcome the culture of nepotism

Nepotism is the tendency of those in power in a family business to promote/appoint unqualified family members purely because they are members of the ‘founding family’. This may hinder the family business sourcing individuals with the required greater abilities and technical skills, making it difficult for the business to reach its full potential.

You well know the continuing successes of the Murdochs, the Packers, the Holmes a’Courts and of course the problems associated with the Hancock-Rineharts. The first three went through the junior ranks learning all aspects of the business, and attending to correct education to enable those successors to perform at highest possible levels.

For example –
Robert Clyde Packer then Sir Frank then Kerry then James & Gretel Packer; and

Sir Keith and Dame Elisabeth Murdoch then Rupert Murdoch, then Prue & Elisabeth & Lachlan & James

They have all participated in the respective empires, with the some of younger members (at that time) taking parts or all of the business off in a different and a more enduring modern direction (e.g. out of print media to electronic media and electronic gaming, casinos etc.).
I mention these two successful families, as in each case at least one descendant did not participate in the ongoing business.

Options

If your plan is to prolong the business you have developed then seek assistance when you are undertaking the business’ future planning.

People and organisations exist who can help you identify the best direction for your business, assist you in any re-organisation that may be required and more importantly assist you identify people and the skills required to enable those plans to be executed so your clients, your employees and your family both now and in the future will be able to continue beyond the now, if that is your desire.

If you need further information, please contact Veritas Advisory and one of our talented people will discuss your particular issues in confidence.

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