Join the family firm after school or university? It used to be a given for sons and daughters of successful business owners, but not any more.
Join the family firm after school or university? It used to be a given for sons and daughters of successful business owners, but not any more.
A study released today says there is less likelihood than ever before of a business remaining in family hands after the current generation retires.
The study has found that half of family business owners have little commitment to continued family ownership or leadership of their businesses and are much more willing to sell to outside interests.
Less than a quarter (23%) of nearly 1,000 businesses surveyed have a policy of remaining family owned and another 33% see remaining in family hands as a first preference.
The MGI Family and Private Business Survey 2006 was undertaken by RMIT University for the accounting group, MGI. It follows up a similar study undertaken in 2003.
The decrease in multi-generational families since the 2003 study is a significant finding - down from 45 per cent in 2003 to 31per cent in 2006.
According to the co-author of the report, Professor Kosmas Smyrnios, 'succession and succession planning are not priorities for these businesses because their intentions are to exit via a trade sale'.
"The value of family owned businesses continues to grow. The estimated total wealth of family owned businesses in 2006 is $4.3 trillion compared with $3.6 trillion in 2003.
"While there are still many first generation family firms, the proportion owned by second to fifth generations of the same family has declined," said Professor Smyrnios. The average age of firms has reduced from 34 to 28 years and the percentage of family business owners age 65+ has decreased from 20 per cent to 14 per cent.
"The greatest decline is in the third to fifth generation category. In 2003, the estimated wealth of these firms was $592 billion and in 2006 it is $346 billion".
"Over the next decade, an estimated $3.5 trillion worth of family business wealth will change hands when current owners either sell or hand down their businesses to sons and/or daughters.
MGI spokesperson, Ms Sue Prestney, who was a member of the study team said; "family enterprises generate more than half of Australia's employment growth and account for about 40 per cent of Australia's private sector output. Over half of Australia's top 500 private companies are family owned.
"It is likely that a number of multi-generation family businesses have seized the opportunity presented by the buoyant economic conditions of the past few years, enabling some family members to start new businesses or acquire existing businesses," she said.
According to Professor Smyrnios, failure to continue as a family business does not mean the business has failed. Most likely it simply means the owners have chosen another exit option.
"This is borne out by responses of third to fifth generation businesses that 84% would seriously consider selling the business if approached (cf 75 per cent of all businesses) with 57 per cent of 3-5 generation businesses giving 'sale price exceeds expectations' as a reason for planning to sell the family business. It seems that we are seeing the 'cashing in' by generations three tofive in a buoyant market of the
culmination of the work of generations," said Professor Smyrnios.
Other findings of the study include:
- Another important trend over the past three years has been the decline of manufacturing firms. In 2003 they represented 40 per cent of survey respondents while this year they were down to 26 per cent. There were more wholesale/retail firms (up from 30 per cent to 33 per cent and construction businesses, (up from 10 per cent to 13 per cent). There were 11 categories surveyed.
- Approximately half the family business owners see themselves working in the business beyond age 65 years. Only 24.5 per cent indicate that they are looking forward to their retirement.
- In 1st and 2nd generation family businesses, many more sons (30 per cent) are involved in day-to-day management than daughters (5 per cent). This compares with sons (33 per cent) and daughters (22 per cent) in 3rd-to-5th generation businesses. Irrespective of generation, however, it appears that sons are 10 times more likely to succeed the current CEO (74.9 per cent) than daughters (7.2 per cent). About 96 per cent of current owners are male.
- Half the family business owners indicate that their retirement programs rely on superannuation (40 per cent in 2003); 75 per cent of them believe that their superannuation is adequate (47 per cent in 2003); and 67 per cent of them report having self-managed superannuation funds (56 per cent in 2003).
