• PKF Hamilton Team
  • September 18, 2018
  • Blog

Family owned businesses (“FOBs”) are big contributors to the NZ economy, and there are many examples in our own community. Those families involved will know how much work and sacrifice goes into creating a business, and it always seems a shame to me to see the number that don’t survive to the next generation. There are exceptions of course, but my perception is that an inability to pass on the family business is an increasing phenomenon.

Particularly at this time, with many baby boomers wanting to retire or slow down, business ownership and management succession is becoming a widespread challenge.

Surveys have shown that in NZ, family-owned businesses don’t last as long as their counterparts in other countries such as Australia, Britain and the USA.

When I first began studying family business 20 years or so ago, I became envious of the strong survival rates in Australia. So, it was sobering to read the results of a recent Australian survey that concluded that: “Perhaps the most disturbing factor evident across the past 4 surveys is the bleak outlook for family business owners. There have been dramatic increases in the percentage of owners who are not only concerned for the future of the business, but who also have concerns about the financial performance of their business.”

Since I last wrote about this subject a couple of years ago, as a firm PKF Francis Aickin Ltd have been involved in a number of family business successions. And I’m sorry to have to say that handing on the family business is not becoming any easier. Why is this?

We see several fairly consistent trends. Probably the most significant of these arises from the mobility of the younger generation. Ironically, that mobility will often have been created by travel and education that the family business may have enabled, or at least contributed to. However that has happened, what we now find is less acceptance that taking over the family business is a natural thing for the younger generation to do. By the time Mum and Dad want to start extricating themselves, the next generation has often made their own way in life, and frequently does not regard continuity of the family business as an important thing to do.

Another trend we see is a younger generation that has become accustomed to reward for effort now, rather than later. We now live in a world of quick gratification, which makes it hard for Mum and Dad to be paid for the business handed over to the next generation.

In any business handover or sale, whether it be to family, existing employees or outsiders, the earlier the succession is planned, the better the chances of it happening successfully. In order to achieve that, external advice is essential.

However, University of Auckland Business School research suggests that a significant feature of the NZ family business environment is a lack of support for families grappling with the issues they face. In other countries, there are organisations dedicated to providing support to the family business sector, by way of research, education and training, accrediting of family business advisers etc. In NZ, our family business owners frequently have to rely on their own skills, or hunt for advisers who can help them deal with their challenges.

Family business owners facing these challenges need to hunt out advisers that have more than the basic technical skills that lawyers and accountants are good at. They must have good relationship skills, a strong empathy, interest and understanding of both the underlying family politics and the business.