27.04.21

Around the Kitchen Table

Tom Simpson


 

Growing up, I have fond memories of my extended family holding business meetings around the kitchen table. Little did I know, these were “board meetings”. With 70% of Australian businesses being family owned, this is likely a common theme for thousands of Australian business owners whose wealth and employment are tied up in their family enterprise. Personally, I find these conversations intriguing as agenda items will cross between business and family with one so important to the other. Although topics differ from kitchen table to kitchen table some, if not all, of the following are bound to be discussed.

Governance:

Much like a large public company, boards (formal or informal) are important for governance and strategic direction. According to Family Business Australia, only 34% of family businesses have a formal board structure in place. This may be due to several reasons including:

–          lack of time / prioritisation due to family both owning and operating the business

–          lack of trust of both internal and external parties

–          family control and emotional attachment

–          lack of broader governance education

There are many different views on the optimal board structure. These often raise the notion of an independent, external non-executive director. This idea might be daunting for a family business, however whether they come in the form of an investor, adviser, or industry expert an experienced and trusted external party can add great value and structure. If continuance of family values and intentions are of concern, a separate Family Council (consisting only of family members) can be assembled to guide the board on the wishes of the family.

Growth:

Growth is often front of mind at kitchen table discussions. Whether it be domestic, international, organic, inorganic or a combination of all the above, keeping ahead of the curve and competitors is crucial for the longevity of a family enterprise.

To grow, it is crucial that the business is proactively investing in initiatives such as:

–          new services / products – potentially via tech development or new offerings

–          talent – ensuring the right mix is in the business and knowing when the business needs to hire externally

–          M&A – capitalising on inorganic opportunities via complimentary acquisitions and having the right skills to both evaluate and execute on a potential transaction

Often these initiatives only receive the necessary attention from the owners of a family enterprise with the assistance from an experienced, external party.

Succession:

The average age of a family business owner is 55 years old yet only 20% of family businesses have a succession plan. Of these businesses, 41% intend to pass the business on to family. These are alarming succession statistics considering the bulk of the family wealth and employment are often tied up in their enterprise.

The following should be considered when planning succession for a family enterprise:

–          legacy wishes of the founders – what “home” do the founders want to see the business go to? Possible options include trade, growth investor or IPO

–          form of succession – what is the right capital structure to achieve the founders legacy and growth aspirations? Possible options include debt, partial sale, full sale

–          key talent – do current family members wish to remain in the business? Is there genuine interest from those who the founders think is next in line? Are the right people in the business now and in the future?

A partial sale to the right growth investor can be a useful mechanism to assist with managing the above challenges whilst allowing the family business to continue uninterrupted. This option can also assist with founder liquidity whilst allowing those interested family members to remain in the business for years to come.

If you are interested in hearing more about the options available or would like to hear more about Pemba, please reach out to me for a chat.

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