04/09/2006 - 12:04

Family business owners must develop exit strategy: survey

04/09/2006 - 12:04

Bookmark

Upgrade your subscription to use this feature.

Family business-owners expecting to turn a quick profit and fund their retirement through a trade sale may be in for a rude shock, according to the Survey of Family Business Needs 2006 launched by KPMG, Family Business Australia and Deakin University toda


Family business-owners expecting to turn a quick profit and fund their retirement through a trade sale may be in for a rude shock, according to the Survey of Family Business Needs 2006 launched by KPMG, Family Business Australia and Deakin University today.

Chief executive of Family Business Australia Philippa Taylor, said that the number of business-owners who intend to sell their business on the open market as an exit strategy has more than doubled from 16 percent in 2004-05 to 38 percent in 2005-06.

"While more than a third of survey respondents indicated their exit strategy was to sell their business on the open market, many did not have adequate structures or even basic plans for finance, business risk or business operations.

"Family businesses are indeed making progress in terms of professionalism and commercialism, but the survey shows there's still a long way to go. The survey shows that a quarter of family business-owners intend to retire within the next five years but many of them have not adequately prepared their business for someone else to take over the reigns," said Ms Taylor.

There is a disproportionate number of people between 45 and 65 years old (24 percent of the Australian population) when compared to the number of people in the potential buyers category 35-45 years old (15 percent of the population).

National Managing Partner of KPMG's Middle Market Advisory practice, Graeme Matthews, said this demographic mismatch meant that only truly profitable or professional family businesses will attract premium pricing with the prospect that the also-rans will be difficult to sell.

"Just as a company needs to make itself as attractive as possible before going to an Initial Public Offering, family business-owners who are looking for buyers also need to get their house in order.

"The survey shows that business-owners are spending long hours in their businesses. After they've worked so hard, it seems a terrible waste not to extract the maximum value they can when they retire. Business planning is essential not just for the smooth operation of the enterprise but also for convincing potential buyers of the value of your business.

"One quarter had no strategic business plan and 40 percent did not have a functional plan for finance. Almost half were lacking a functional operations plan. Without a robust business infrastructure in place, those looking to either pass on or sell off their business may find it more difficult than they thought and in some cases may be cheating themselves out of their retirement," said Mr Matthews.

Survey highlights

  • 73 percent of respondents spent 40-69 hours working in the business a week.
  • 26 percent of respondents plan to retire in less than five years, 35 percent within the next five to 10 years.
  • 62 percent of family businesses surveyed had not chosen a successor.
  • Family businesses rated increasing profits as their number one business challenge, followed by business growth and then increasing customer base/ sales/ turnover.
  • Respondents ranked international competition as their lowest concern in terms of business challenges.
  • Balancing short-term and long-term business decisions remained the number one issue for family businesses, followed by maintaining loyalty of non-family members, and determining the financial value of the business.
  • Finding an outside buyer for the business was considered by respondents to be of the least concern in terms of business issues despite 38 percent of respondents indicating that they plan to sell their business on the open market.
  • In terms of performance evaluation, 92 percent evaluated their financial performance, 76 percent their manufacturing/ operational performance, and 73 percent their customer feedback. Only 35 percent evaluated their environmental performance.
  • Estate planning proved to be the most popular family-to-business mechanism with 72 percent employing wills for senior members who have a stake in the business. Only 17 percent employed a family constitution as a family-to-business mechanism.

Snapshot of the average family business in Australia (according to survey respondents)

  • Owner is Australian born, aged between 50 to 59 years old.
  • Business started by current owner to 'be their own boss'.
  • Business is in the manufacturing and distribution sector or the wholesale and retail trade industry.
  • Five-19 full time employees and less than five casual/part time employees.
  • Two generations involved in the business.
  • Positions held by family members: Director (Male 66 percent, Female 39 percent); CEO (Male 62 percent, Female 6 percent).
  • Superannuation in self-managed fund.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options