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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

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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