Our Insights

Succession planning in family businesses is not just a matter of passing the torch; it’s a complex process that demands foresight, communication, and meticulous planning. However, numerous pitfalls can derail even the most well-intentioned efforts. For owners of family businesses, avoiding these common mistakes is paramount to ensuring a smooth transition and securing the future of the enterprise. 

  Starting too late: 

While timing is of the essence in succession planning, people often delay because of perceived complexity or the challenge of reconciling a wide range of inputs and opinions. Commencing the process early allows ample time to address complexities and uncertainties. Seeking guidance from trusted advisors and initiating planning before the younger generation becomes involved in the business is essential.  

  Poor communication:  

Effective communication is the cornerstone of successful succession planning and communication should be in writing and supported by good record keeping. Clear articulation of short-term and long-term plans, along with transparent sharing of goals and expectations, fosters clarity and alignment among stakeholders. Engaging family members who are not actively involved in the business ensures inclusivity and acknowledges their significance as stakeholders. 

  Poor leadership: 

Sound leadership and governance are indispensable for navigating the intricacies of succession planning. Identifying decision-makers within the family or considering external advisors and or advisory boards can provide valuable insights and guidance. Flexibility in leadership arrangements to accommodate evolving needs is crucial for sustained success. 

  Losing momentum: 

Maintaining momentum in succession planning requires regular review and refinement. Structured meetings, preferably held annually, facilitate progress tracking and keep stakeholders engaged. Breaking down the process into manageable tasks prevents overwhelm and ensures steady progress toward established goals. 

  Poor planning: 

Inadequate planning poses significant risks to the succession process within family businesses. It is imperative to understand current business structure, including ownership and control of key assets, both business-related and non-business related. Understanding the implications of potential events, such as death, on asset distribution is essential for continuity. When considering expansion through acquiring new assets, careful evaluation of ownership structures is necessary to align with the overarching succession plan.  

  Moreover, it is essential to plan the accumulation and structuring of business and non-business assets to support the succession strategy effectively. Factors like accumulating sufficient superannuation, securing an unencumbered family home, particularly for retiring parents, must be meticulously planned, including the retirement of associated debts. Recognising that achieving all targets may not be feasible in the short term underscores the need to prioritise objectives annually. Neglecting to address business and asset structuring requirements can result in costly restructuring, leading to unexpected tax and transfer duty burdens that could compromise the intended succession plan. Seeking guidance from professional advisors from the outset and continually throughout the process is indispensable for navigating complexities, achieving best outcomes, and ensuring the longevity of the family business. 

  Failure to implement: 

A meticulously crafted plan is only effective if it’s put into action. Implementation involves a series of incremental steps. Consistent execution of the plan’s components ensures alignment with long-term objectives.  

  Conclusion: 

Succession planning in family businesses demands proactive engagement, open communication, and strategic foresight. By recognising and addressing common pitfalls, family businesses can navigate the complexities of succession with confidence, safeguarding the legacy of their enterprise for generations to come. Prioritising early action, clear communication, and diligent execution lays the groundwork for a seamless transition and sustained prosperity. 

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  Thorntons is an accounting and advisory practice to mid-size, family-owned businesses in Western Australia. We offer a fully integrated portfolio of financial, tax, succession, and estate planning services and have the experience to guide you through the complexity so that you can enjoy stability, peace of mind and certainty. 

  To discuss your individual business needs and find out if we might be a fit for you, please contact Thorntons at tp@thorntons.biz or call (08) 9421 1722.