Family business accounts for approximately 70 percent of all businesses in Australia. The average length of time that a family business operates is over 30 years and the average age of a business owner is currently 55+ years, with 25%of owners aged over 65 years.
However studies show that over half of all family businesses do not have a strategic plan or a formal business plan in place and 75 percent of family businesses do not have an agreed succession plan.
The importance of having these sorts of plans in place cannot be underestimated as they allow family businesses to have a vision for the future and to take advantage of the unique aspects of running this type of business.
Thinking about succession can be daunting for many business owners. Too often the succession for family businesses is selling up or closing the doors, which may not the best outcome for the family.
Planning for the future does not have to mean that the business owner must relinquish control of to the younger generation before the time has come. Rather, it is about taking steps to ensure that when the time arrives for the business owner to step back or become less involved in the business, the younger generation and the business is in the best possible position to ensure a successful transition..
Creating a family constitution can help families to consider their succession options. A family constitution assists the family to develop agreed goals and rules for succession in ownership and management of the business. Most importantly, the process of preparing a family constitution enables the family to begin a dialogue about the issues surrounding succession which can often be the most difficult aspect of the process for family members. Once implemented, a family constitution can ensure that everyone is on the same page and understands the direction the business is to take in to the future.
A shareholders agreement is another option which can assist in planning for the future. If the ownership of the business is shared by family members, a shareholders agreement can help plan for future events such as an unexpected death or the retirement of an owner. A shareholders agreement can operate alongside a family constitution and add further details regarding shareholdings in the event of certain circumstances.
Planning for the future of the business is crucial and family constitutions and shareholders agreements assist families to plan for the future and ensure the longevity of their businesses.