Report suggests passing business on to family a mistake

Australian family and private business owners are more likely to sell their business than pass it on to the next generation, according to Pricewaterhouse Cooper’s (PwC) Once in a Lifetime report. Out of the 38 per cent of people who want the next generation to take over the family business, 83 per cent have no succession plan in place.

Another study by Campden Research and UBS recently found that family offices in the Asia-Pacific region lagged behind North America and Europe in succession planning, with only 13 per cent having a written plan in place, while 19.4 per cent have no plan at all.

The PwC report found that 70 per cent of business transitions fail, and just five per cent of businesses survive into the fourth generation. It has also been observed that once the children take over, there is a breakdown in trust and communication roughly 60 per cent of the time, while one in four fail because of inadequate training.

PwC Australia partner and private leader Sanjiv Jeraj said most family-owned companies that are founded by baby boomers in their 50’s and 60’s are looking to sell by entering into private equity partnerships or floating their company.

Foreign investors are showing a strong interest, especially from Asia, eyeing Australia’s services, health, and food businesses sector, however many owners do not prepare enough for the sale and end up with personal of financial consequences. 

The PwC report warned of ‘sudden wealth syndrome’, where large increases in a family’s wealth can potentially ‘wreak havoc on families, relationships and personal well-being.’

The report also noted that ‘preventing sudden wealth syndrome requires careful planning. Well before you sell your business, think about how you will distribute your wealth, how you might invest and spend it, and how you will pass it on to the next generation.’

Family and private businesses contribute roughly $600 billion to Australia’s GDP and employs more than three million people.