Small Business: Family succession - Andrew Bathgate, BDO New Zealand

Andrew Bathgate, a partner specialising in family business and succession at BDO.

Small business editor Caitlin Sykes this week interviews a handful of small business owners about how they manage family succession.

Andrew Bathgate is a partner specialising in family business and succession at accountancy and business advisory firm BDO.

What are some of the trends you're seeing in terms of family succession in New Zealand, and what do you think are driving those?

The 'leadership' generation is staying in the family business for longer. That's being driven by a lack of succession planning and the simple fact that people are living longer and are also more active as they grow older. The downside of this is that often talking about succession is left too late and younger family members can have established a career independent of the business and don't have any desire to step into the family firm. But staying in the business for longer doesn't need to be a negative; I've actually seen it can be the opposite when it's managed properly.

We've seen situations where the older generation has been able to successfully transition into a mentoring role, but for that to happen there needs to have been an active and conscious effort by the family to address succession a lot earlier.

Some of the larger family businesses we've been involved with have looked to private equity firms to provide a form of succession whereby the business is sold. This can then create other issues with the family wealth now being held in a family trust for the benefit of the trust's beneficiaries, and the trustees are then left with the responsibility of managing and investing a large amount of wealth.

What are some of the common factors you've observed among families that successfully manage succession?

From our experience good communication and a planned, structured approach are key to any successful transition of leadership from one generation to the next. The communication needs to involve those family members actively involved in the business as well as those who aren't. It's only by going through that process that you can make sure all the members of the family have their expectations aligned, and people aren't left feeling disenfranchised and left out. You want everyone 'in the tent' so to speak.

On the other hand, what are some common pitfalls or problems you've seen families fall into when negotiating this transition? Poor communication. Family members can have wildly different expectations of what will come out of the transition and often these issues might not hamper the initial transition, but in my experience I've seen they can manifest further down the track. Potentially it can be very negative for the business and the family if people don't communicate openly and honestly from the outset.

If a family is starting on this journey, where do you think is a good place for them to start to get the ball rolling?

Look to set up some family meetings and establish a kind of forum where the family leadership can report back to the family on the business and look to get feedback from the wider family group. The meetings can be used to start a discussion around the business, family and succession. It can help to involve a trusted advisor to lead these discussions, which provides a level of independence and structure to the meetings.

What are three key tips you'd have for managing a successful family succession?

1. Establish good two-way communication between the business and the wider family group.

2. Formalise a structured plan of how the business leadership will be transitioned from one generation to the next. It may well include 'rules' and expectations around how the younger generation will work in and learn the family business before moving into leadership roles.

3. Together with your advisors look to establish a family charter or constitution - a document that governs how the family and business will interact with each other, which is created after getting input from all family members.

• Coming up in Small Business: What do small business owners do when they have a baby? If you've got a story to tell about how you've handled your own parental leave as a business owner drop me a note at nzhsmallbusiness@gmail.com.