Working with families in business involves dealing with complex issues and profound challenges – from sibling rivalry to dysfunctional intergenerational expectations. Perhaps no problem is more complex, for both the family and the business, than succession planning. Accountants, acting as trusted advisers, have an important role to play in helping families to deal with this major issue, and plan for the future.
The family business sector accounts for 60 to 70 percent of all registered businesses in the US, UK and Australia. For many chartered accountants anywhere between 80 to 90 percent of their clients fit into the family business / private business category.
There’s no such thing as a typical family business. A common misconception is that family business and small business are the same thing. That’s simply and obviously wrong – small business is actually a subset of family business. What’s more, no matter whether a business is large or small, although it will have unique specific issues, its broader issues will generally be similar to those of most others.
Family businesses are found in almost every sector of the business community – from manufacturing and importing to retailing and professional services. Many of Australia’s most dynamic private businesses are owned by families and over 2/3 of BRW’s Rich List is populated by people who’ve made their money in family businesses. At the top end we see the likes of Rinehart, Packer, Pratt and Smorgon, and there are many more in the $10M to $100M range.
Having family members involved in a business can result in tensions and challenges that aren’t present in other businesses. For instance, in a family business individuals tend to have more prominence and influence than they would in a comparable corporate environment. Meanwhile, family alliances, loyalties and antagonisms loom much larger than in non-family operations.
Classic family business conflicts includes sibling rivalry and intergenerational clashes between parents and children. When there are three generations working in a business at the same time the possibilities become almost endless!
Families have all sorts of expectations about how their people will behave – often underpinned more by naïve and trusting assumptions than by any established process of open discussion, policy formulation, or stated “rules of engagement”.
A major challenge for accountants working with family businesses is to identify developing conflicts before they cause catastrophic damage to the family and the business. Accountants acting as trusted advisers are uniquely well-placed to help families deal with such problems, but sadly many see this as being far beyond their engagement, skills and courage. This both constitutes failing to discharge the responsibilities of a trusted adviser, and opens the door to other advisers who are willing to assist, particularly those with additional training in family business matters.
Succession planning is one of those critical areas in which accountants can greatly assist their established clients. It’s generally more helpful to think of it as “leadership transition” in the family and its business, as this helps to define the context for continuity planning in the accountant’s practice. It’s remarkably common for family businesses to change their advisers when a generation retires, partly because the incoming generation has its own friends and contacts, partly because there’s a natural urge to sweep away Dad’s (or Mum’s) people, and often because many professional practices fail to plan their own continuity by not encouraging their own next generation of practice leaders to build strong and trusting relationships with the business successors amongst their clients.
By helping clients deal with succession issues accounting firms are dealing with their own succession plans – building enduring relationships with clients across new generations.