Tom Simpson
On Friday, Australia celebrated National Family Business Day. In the spirit of the festivities, I thought it was appropriate to step back and appreciate a few statistics published by Family Business Australia (FBA):
- approximately 70% of Australian companies are family businesses
- the average family business employs 37 people
- the average age of a family business owner is 55 years old
- 81% of family business owners intend to retire in the next 10 years, generating a wealth transfer of $3.5 trillion.
These statistics highlight the importance of family businesses to the Australian workforce and how crucial succession and legacy decisions made by current owners will be to millions of Australian employees over the coming decade and beyond.
At Pemba we regularly meet with family business owners looking to explore how a partial exit to a growth investor could assist with the transition. With 81% of family business owners intending to retire over the next 10 years and only 41% intending to pass to family members, I thought it relevant to dive a little deeper into what FBA published as the three major influences on the succession process:
1. The ability of the business to generate adequate financial returns
2. Level of trust in the abilities of potential successors
3. Level of interest of potential successors in the business
Owners considering a growth partner in the succession process should assess these three major influences against all potential candidates.
1. The ability of the business to generate adequate financial returns
Founders and their families should feel confident that their new partner shares a sustainable growth mindset and has the relevant experience to help continue to grow the business alongside remaining family and staff members.
At Pemba we strongly encourage owners to verify the track record of potential candidates (both on buying and exiting businesses) as the proof really is in the pudding. We also recommend vendors conduct reference checks of the founders and management teams of previous partner companies to hear directly how an investor operates.
2. Level of trust in the abilities of potential successors
We believe that this starts from day one of meeting a potential growth partner. Have they truly listened and understood what your objectives are and what is important to you when it comes to both the initial transaction but also the partnership moving forward?
This point goes hand in hand with point one. Founders should be comfortable that a potential partner can achieve their future growth objectives whilst also trusting that they will prioritise other non-financial objectives such as people and the company’s legacy moving forward.
3. Level of interest of potential successors in the business
There is plenty of capital in the market looking to invest in profitable, growing enterprises. It is therefore important that family businesses consider the motives for why a potential partner may be interested in their business.
Have they partnered with other founders in this space before? Do they know your sector?
Pemba takes a sector-focused approach, specialising in only five: technology, non-bank financial services, education, business services and healthcare. When we reach out to a potential partner company, it is because we have done our research and know that the company is operating in one of our core sectors.
If you are interested in exploring how a growth investor could help assist with a potential succession event or would just like to have a general discussion about any of the above, please email me at toms@pemba.com.au to organise a chat.
