A recent Ernst & Young Report has found small to medium Australian businesses are falling behind the rest of the world in rankings when it comes to key business areas, including succession planning.
“Family businesses, as an essential source of prosperity and stability both for local and for global economies, need to ensure they are not putting their heads in the sand when it comes to succession planning”, advises Ernst & Young Oceania Family Business Leader, Ian Burgess.
As we are still a young country, most of Australian businesses are still in first-generation hands. Statistics show only 1 in 3 family businesses pass hands into the second generation successfully, while only 1 in 10 survive into the third.
“Succession is arguably the most critical issue a family business has to face, yet it is often one of the most difficult to navigate. Complicated family dynamics and the emotional connection that business leaders and family members feel towards their companies can make addressing the issue a potential minefield”, said Mr Boyce Ernst & Young’s Oceania leader for family office services, Richard Boyce.
These findings are backed up by the second edition of the Scottish Pacific SME Growth Index engaged in researching over 1,200 small to medium sized Australian businesses towards the beginning of this year and the results should be a wake-up call to accountants and business owners.
A staggering 35% of Australian small to medium business owners are not armed with an exit plan in case their business fails!
This Growth Index also found family and friends are approached by owners for advice over professionals, indicating this is an area accountants can capitalise on using their specialised skill-set to help owners put-together and execute succession plans effectively.
“For an accountant, providing a client with a well-executed succession plan can strengthen the business relationship with both the buyer and seller, safeguarding existing and potential future income streams”, points out Peter Langham, CEO of National Working Capital Solutions.
Owners or family council: 32%
In comparison, the global results show 44 percent of businesses world-wide left succession planning duties to the board of directors.