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When to Hire Outside Help for Family Business

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When to Hire Outside Help for Family Business

By , July 4, 2016
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family business succession
Many family businesses are currently struggling when it comes to passing on leadership to successors. Often the incoming-generation is not interested, prepared or able to take over. Therefore, owners are looking to external management (in a recent client, the first time in well over 100 years that anyone outside the family will run the business).

One of the greatest barriers to successful succession and exit, particularly in family businesses, is simply the inability of the owners to let go of control and management. 32% of retiring owners will continue to influence key decisions in the background; this hinders the business from becoming fully independent, triggering issues when it comes to later stages of succession planning.

Align Your Successor’s Goals with Yours

The key here is to gain alignment between the new employee (non-family member) and the shareholders or family.  Alignment of ownership interests and employee interests can often be achieved through profit share plan on employee share ownership plan (ESOP).  The plan ensures the new employee has the same financial drivers as the shareholders and encourages them to think and act like a business owner. This helps significantly in retaining key employees and also lowers the supervision that is usually needed on outsiders.

It is also important to do this at an early stage. Peter Latta recognised this when passing on ownership of his enterprise to outsiders 10-15 years in advance. “This was so our team members and the owners would, from a cultural perspective, have experience, and be comfortable, with the top leader of Pyle being either an owner or non-owner of the business.”
New employees need a period of adjustment to gain the experience necessary to operate the business on a day-to-day business. Old shareholders need a period of adjustment to get accustomed to outsiders running their family business.

Families who have successfully engaged an external (professional and experienced) manager have seen dramatic improvements in performance when the management is aligned to shareholders. Heres 12 more reasons why family businesses should consider outside leadership.

 

Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.