Assisting family businesses can involve many complex issues and profound challenges – from resolving sibling rivalry to handling dysfunctional intergenerational expectations. Perhaps no problem is more complex, for both the family and the business, than succession planning. Accountants, acting as trusted advisers, have an important role to play in helping families to resolve issues and plan for the future.
The family business sector accounts for 60 to 70 percent of all registered businesses in the US, UK and Australia. For many chartered accountants anywhere between 80 to 90 percent of their clients fit into the category.
There’s no such thing as a typical family business. A common misconception is that family business and small business are the same thing. This is simply and obviously wrong – small business is a subset of family business.
“I’m working with two families at the moment that have a combined turnover of about half a billion dollars a year, and with another turning over less than two million” he says. “Their individual issues are unique, but their essential problems are very familiar.”
Family businesses are found in almost every sector of the business community – from manufacturing and importing to retailing and professional services. Many of Australia’s most dynamic private businesses are owned by families. At the top end we find the Packers, Pratts and Smorgons, while there are many more in the mid range of $10- to $100-million turnover.
Having family members involved in a business can result in tensions and challenges that aren’t present in other businesses. For instance, in a family business individuals tend to have more prominence and influence than they would in a typical corporate environment, and family alliances, loyalties and antagonisms loom very much larger than they do in non-family opereations.
Classic family business conflicts includes sibling rivalry among people of the same generation and intergenerational clashes between parents and children. Sometimes three generations work in a business at the same time.
“That can set up interesting situations because within a family there are all sorts of expectations about how people will behave – and these expectations are often underpinned more by naïve and trusting assumptions, rather than by any more formal process of formulating policies, or by stating the “rules of engagement”, says Kenfield.
A major challenge for accountants working with family businesses is to identify these conflicts before they cause catastrophic damage to the family and the business. Accountants, if they have the courage, can act as trusted advisers to help deal with these problems” says Kenfield.
Another area in which an accountant can assist is with succession planning. This should actually be called “leadership transition. “An older accountant might have a long relationship with the founder or current owner of the business and can help them to develop sensible succession plans and financial plans in good time,” says Kenfield.
Moreover, younger members of the same accounting firm should be encouraged to develop relationships with the upcoming next generations in their clients’ businesses.
“The process of helping clients to deal with their succession issues helps the accounting firm to deal with its own succession plan – by building enduring relationships with clients across the generations.”
Key Points
- The family business sector accounts for 70 to 80 percent of all registered businesses in the US, UK and Australia
- Most of Australia’s more dynamic private businesses are owned by families. Small businesses are a subset of this group
- The dynamics of a family business can include conflicts within and between generations
- Accountants can help to prevent and resolve conflicts in their long-term clients’ family businesses.
- Accountants can facilitate succession and financial planning processes in family businesses..