August 19, 2013

Stepping back from total control

A business that depends on one person for its success is a business at risk - but stepping back is rarely easy, particularly for the founder of a family business. Bill Noye, Partner in charge of KPMG Private Enterprise in Brisbane, suggests ways to make the process as smooth as possible.

Anyone who starts a business from scratch needs the courage to take full responsibility for every decision. But there comes a point where having this level of control becomes a liability. A business that couldn’t survive without you has little resale value and carries high levels of day-to-day risk. Strategically, it’s vital that your business can continue to thrive if, for any reason, you step back to a less central role.

“This means making sure that other people can take over all of your duties and responsibilities,” says Bill Noye, Partner in charge of KPMG Private Enterprise in Brisbane and National Chair of Family Business Services. “They can only do that if they know exactly what those responsibilities are, so you need to write what’s effectively a job description. This should include details of all the work you do and also document any business information you’re carrying in your head.”

You then need to ensure your managers have the ability and the capacity to take on a more demanding role. You may also need to take income, control and equity into consideration.

“This isn’t a process you should undertake in a hurry. In fact, the longer you allow, the better,” says Noye. “I ran a workshop recently with a family business on exactly this issue and we established a transition period of 15 years.”

Key considerations if you’re thinking about stepping back

  • Write a list of your key responsibilities.
  • Make sure you have the right managers in place.
  • Be prepared for a long transition time.
  • Make sure everyone involved understands the plan for the future.

Everyone with a vested interest in a family business should be clear about the way it operates. They also need to agree on its future.

“When we’re working with clients we usually conduct one-on-one interviews with the proprietor, key management and any other adult family members to find out what they want in the long term, both for the business and for themselves,” says Noye. “This also helps us identify where they’re all aligned and the issues that need some work in order to for everyone to reach agreement.”

Statistics show that the transition is most likely to proceed smoothly if the business has a strategic plan in place which includes the issue of succession. “Sound plans establish an orderly pathway with milestones and checkpoints, which can be articulated to everyone,” says Noye.

A classic Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis will provide an overview of where the business stands.  You can then think about the role you’d like to be playing in two to five years’ time and what you need to do to achieve that goal.

“Stepping back is rarely easy,” says Noye. “It’s very, very common for incumbent CEOs and managing directors to have doubts about the next generation’s ability to take over the reins. An experienced facilitator and adviser can have a very constructive influence on the process and I very strongly recommend joining Family Businesses Australia, a not-for-profit organisation that helps family businesses to grow, network and learn from each other.”

Iain Rogers, General Manager Wealth, NAB Business Banking, agrees and also points out that business owners should ensure they have the right business protection plan in place from day one. This can help to maintain the value of the business in the event of a forced retirement due to injury, illness or death of themselves and also of key staff within their organisation.

“We’ve seen many cases when people have been injured and can’t work,” he says. “Cash flow and the business suffer, and both custom and business valuations can drop quickly. This can rapidly lead to family hardship where they’ve been relying on a previously sound business.”

NAB has a wealth of experts that can work with you and your existing advisers to develop a succession plan and assist with Wills and Estate Planning.   Speak to your business banker to find out more.

Find out more about Family Business Australia

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