Next generation
How do other family businesses get the best out of the next generation?
How do other family businesses get the best out of the next generation?
Even the most successful family businesses can struggle with this question. Sometimes, the generation currently running the business feels a reluctance to let go and let the next generation step up. In our experience, the best transitions follow some common steps.
Wealth succession
How do other family businesses manage the succession of wealth?
How do other family businesses & family offices manage the succession of wealth?
We hear this question a lot. Owners often spend decades building their businesses up – not just for themselves but also for their families. How then can owners ensure their nearest and dearest enjoy the fruits of all that labour? And how do they do that while maintaining family harmony?
Optimising the business structure
How are other family businesses structured from an asset protection and tax perspective?
How are other family businesses & family offices structured from an asset protection and tax perspective?
Most established family businesses are a product of their environment. Processes and systems have adapted over time, others have barely changed, and some remain the same for decades. We’ve worked with owners to tackle this challenge by taking a fresh look at how they structure their business and assets.
How do other family businesses get the best out of the next generation?
Even the most successful family businesses can struggle with this question. Sometimes, the generation currently running the business feels a reluctance to let go and let the next generation step up. And sometimes family members disagree about who should take which role(s) when the succession takes place.
Our 2024 Global NextGen survey found that the next generation of family business leaders are less likely to feel clarity around business roles, responsibilities, and governance structure (compared with the current generation of leaders).
So, you’re not alone if there’s some tension between the generations in your family business. It’s actually common. However, we have worked with many families who have resolved this. Together, they’ve prepared the next generation to step up and then gradually delivered a smooth transfer of control.
What do those families do well that others do not? In our experience, the best transitions follow some common steps:
Forming a solid, documented plan
Communicating very clearly
Harnessing family members’ strengths.
Planning starts with being clear about the purpose of the family wealth and the business, including which values matter to each family member. The best transitions are usually those where family members accommodate one another’s styles and listen to one another. Skilled external facilitators can assist with communication, ensuring everyone’s views are accurately recorded and preventing misunderstandings (which are a common trigger for family conflict).
When you have clarity and agreement on purpose, values, and enhanced communication, then you can draw up a family charter that records these. This charter should inform your ongoing structure, operations, and governance, including roles and responsibilities for the next generation.
Successful transfers of control are usually a transition of management and ownership over time (years, not months), allowing the next generation to gradually take on more responsibilities.
For example, a family that has identified values such as ‘making a difference in the world’ or ‘giving back’ might appoint a member of the next generation to spearhead a philanthropic foundation – exposing them to management and fiscal responsibilities. Or a younger family member might lead on technology innovation. Our 2024 Global NextGen survey found 73% of NextGen believe that generative AI is a powerful force for transformation however only 7% of family businesses have implemented AI. There’s an obvious opportunity here to give the next generation their chance to shine.
In short, a properly defined business succession plan is a wonderful opportunity for the next generation to lean into their strengths, learn new skills, and build a foundation for the future.
How do other family businesses & family offices manage the succession of wealth?
We hear this question a lot. Owners often spend decades building their businesses up – not just for themselves but also for their families. How then can owners ensure their nearest and dearest enjoy the fruits of all that labour? And how do they do that while maintaining family harmony?
Firstly, let’s be real. It’s not always harmonious. The worst-case scenario is a distribution of assets and wealth that causes conflict and fractures relationships.
Secondly, we’ve worked with families who have carefully managed the succession of wealth amicably. Not because they have an innate genetic gift for harmony – no family does – but because they take the time to follow a clear, careful process.
Protecting family wealth seems like a big challenge so, understandably, many owners want to jump straight into solutions like family trusts, asset ownership, corporate entities, tax considerations, and so forth. But rushing these decisions invariably causes conflict and exposes the family wealth to unnecessary risk.
Instead, it’s important to listen to family members, document a plan, communicate clearly, and manage everyone’s expectations.
In our experience, the best rule of thumb is: never assume.
We encourage owners to pause and take an objective look at their business and family members’ aspirations. As skilled facilitators, we frequently manage an impartial process of listening to each family member so that there are no surprises later on. As part of this, we can make certain which, if any, family members want to be involved in running the business long term.
From there, owners can make informed decisions for the transfer of family wealth and the future of their business. We encourage owners to consider the difference between what is ‘equal’ and what is ‘fair’. Let’s say the next generation consists of three siblings. You could split the family wealth ‘equally’ three ways. But what if two siblings have spent 10 years working to grow the business, while a third was not involved? What if one sibling wants to run the business in future, but the other two have no interest? In these (very common) circumstances, what is ‘fair’ and what is ‘equal’ are not necessarily the same thing.
Having listened to family members and made decisions for wealth succession, owners need to back this up with sufficient governance to document roles and responsibilities, and set clear expectations among family members. (Right down to the details, such as clarifying what ongoing level of detail/frequency a sibling can expect to receive about the business if they aren’t involved in the day-to-day operations.)
Governance is an Achilles heel for many family businesses. Our 2023 Family Business Survey found a lack of sufficient governance could undermine intergenerational succession for many Australian businesses. Only half (50%) of respondents had a shareholders’ agreement, less than a third (27%) had a family constitution or protocol, and just 15% had a family employment policy.
For owners, establishing strong governance makes it much more likely that the wealth transfer they wish for, happens as intended.
One final point: a successful plan for the transfer of family wealth is not about consensus. (After all, no family in the world agrees on everything.) ‘Success in succession’ will almost always be a compromise. But when that compromise is the result of hearing everyone’s perspective, backed up with clear communication and sound governance, the result is much more likely to be a happy family and a happy business.
You can read more details about the essential steps for wealth succession in this PwC Australia article.
How are other family businesses & family offices structured from an asset protection and tax perspective?
Most established family businesses are a product of their environment. Processes and systems have adapted over time, others have barely changed, and some remain the same for decades.
So today, when you step back and look objectively at an established business, you typically see a patchwork of outdated structures that may no longer serve their original purpose.
This complexity is not only confusing and inefficient – it can also cloud decision-making at pivotal moments, such as when owners are determining a fair distribution of wealth among the next generation. This often exposes the business to unintended tax consequences and ineffective asset protection.
We’ve worked with owners to tackle this challenge by taking a fresh look at how they structure their business and assets. Together, we’ve found solutions to better balance their legal, financial, and family circumstances.
This starts with articulating a clear vision for the future of the family business and wealth (taking into account long-term options such as succession, asset growth, overseas expansion, philanthropic commitments, or a potential sale).
When families know where they want to be (i.e. their shared vision), then owners can structure their business and assets to help them get there. This includes documenting responsibilities and lines of communication among family members and entities. Such transparency helps prevent misunderstandings and conflict, ensuring everyone understands their respective roles within the business and wealth management plan.
When providing funds to the next generation, it’s important to understand the implications of different structuring decisions. For example, gifting a sum of money to allow a younger family member to purchase their first home might seem like a simple act of generosity. But it could have unintended consequences if the family member is later divorced. So, some families might choose to loan the money to the family member to ‘future proof’ family wealth.
That is just one example from many we could name. External legal, financial and governance professionals can offer structuring options tailored to the family’s goals, while anticipating future legal and financial implications. Having impartial voices in the conversation can facilitate an open dialogue to help owners decide on the structure that balances family members’ various priorities.
Also part of the decision-making process is to consider the tax implications of different possible structures. Ensuring compliance and maintaining a good relationship with tax authorities is essential, so prudent tax planning advice should be high on the priority list.
Whatever your aspirations for your family wealth, professional advice can help you make informed decisions about how best to structure and protect your wealth. You can read more details about the essential steps for wealth succession in this PwC Australia article.
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