As you get older, a common consideration as a business owner is identifying who will continue to drive your business forward after you’ve stopped working.
For family businesses, passing the business down to the next generation to manage and operate seems like a natural progression. If, however, your children don’t share the same interest in your business and don’t want to take over, you need to consider your options.
What should you do when your children don’t share your passion for the family business?
Before you begin considering how you’ll structure your business for future generations, you need to speak with your children to determine whether they are interested in continuing to drive your business forward or if they want to pursue a different path outside the family business. Once you have a clear indication of whether your children are interested in taking over the family business you have two options – put a succession plan in place or explore other exit options based on your unique situation.
Your exit options will depend on your purpose for exiting the business and may include factors such as:
- exiting the business to enjoy retirement
- realising some of your business’s wealth while maintaining a stake in the business
- setting up your family’s wealth for the long-term
- using funds from exiting the family business to help fund your children’s business ventures.
Some of Australia’s most prominent business families have diverse interests, with the younger generations in some families enjoying their own success in different industries, while some businesses remain in the family for generations.
- Gina Rinehart – worked in the family business after graduating high school and inherited a 76.6 per cent share in Hancock Prospecting, taking over as Executive Chairman when her father passed away in 1992.
- James Packer – while he inherited control of his father, Kerry Packer AC’s media company Consolidated Press Holdings Ltd, James Packer expanded his business interests starting Crown Resorts in 2007. Packer’s recent sale of almost half of his holding in Crown Resorts indicates a new sector of interest may be on the horizon.
- Smorgon family – formerly, Smorgon Consolidated Industries, the family divested the company in 1995, with the proceeds divided among the Smorgon family in Australia to re-invest and purchase new companies using the umbrella company, Victor Smorgon Group.
Properly structuring your exit to meet your goals
If your children have expressed that they’re not interested in taking over the family business, and you are going to realise some of the wealth you’ve built in the business, this may be a taxable event that can reduce family wealth in the near term. This is where it becomes particularly important to seek advice around properly structuring your exit from the business to minimise the risk of a reduction in family wealth while complying with your tax obligations.
Thinking ahead to further generations
Divesting part of your business to secure wealth and invest in the business ventures of younger generations can pave a path for the next generation of entrepreneurs in your family. You should ask yourself whether greater family value will be achieved if the next generation pursue their passions and interests, rather than inheriting a business you were passionate about.
As demonstrated by some of Australia’s most prominent business families, younger generations have enjoyed considerable success as they’ve pursued their own paths, establishing companies in industries that more closely align with their personal and professional interests. Further, business pricing is strong in the current market which could provide a larger amount of capital to put towards retirement and investing in your children’s business ventures to establish the next phase of long-term wealth building in your family.
Pitcher Partners has an experienced team of specialists who work with family businesses. Do not hesitate to contact us if you would like to discuss your situation and the structure of your business moving forward.