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Family Businesses That Closed: Why and What’s Been Lost?. Paper by Associate Professor John Spoehr Executive Director Centre for Labour Research. Background to the study…. - PowerPoint PPT Presentation
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Jill Thomas, AGSB
Family Businesses That Closed:Why and What’s Been Lost?
Paper by Associate Professor John Spoehr
Executive Director
Centre for Labour Research
Jill Thomas, AGSB
Background to the study…
Australia will experience an unprecedented rate of business transfer over the next ten years as the baby boomers approach retirement.
Currently the average age of family business owners is around 56 and the median age around 53.
Estimated that nearly half of all family businesses intend to sell their business within the next 10 years - $1.6 trillion of wealth to change hands
Jill Thomas, AGSB
Common knowledge…
Between two-thirds and three-quarters of family businesses either die out or are sold by the founding family during the first generation, and only 5 to 15 per cent continue into the third generation (Smyrnios et al. 1997).
Jill Thomas, AGSB
Business exits…
• Study was concerned with the exits of 'family owned businesses' from the market place.
• A ‘sale’ that resulted in the transfer to a different ownership structure can be seen as the loss/closure/exit of a family business but what happens with (hopefully) the resulting capital/wealth.
• Some exits from poor business practices
Jill Thomas, AGSB
Study was the initiative of…
SA chapter of Family Business Australia in association with the Small Business Development Council of SA.
Funded by a grant from the South Australian Department of Trade and Economic Development
Jill Thomas, AGSB
Reasons for exits, commonly identified…
Family businesses not adapting to changing environment
Internal resistance to change Overspecialisation Lack of competent successor Poor leadership Family dynamics Lack of effective and timely communication
Jill Thomas, AGSB
Positive reasons for exits…
Adapting to change and competitive pressure
Reinvent to accommodate developments in their product range
For ‘family first’ reasons
We know a great deal about the reasons for family business exits but very little about the impacts
Jill Thomas, AGSB
Plan for the future… Consider what is right for your business, sale or
succession
Future is the most significant change you will experience
Exiting is not a failure… if for the right reasons but there will be different strategic imperatives for which to prepare.
The key is to be able to have a choice rather than for an exit to occur by default
Jill Thomas, AGSB
Who do business exits affect…
Owners and their families Employees and their families Suppliers Economy (how ??) Communities, local regional, national?
cf combination of many business failures at once ‘contagion’ knock on macro implications of Asian economies in 1990’s
Jill Thomas, AGSB
What are the effects… Financial Psychological Flow on eg philanthropy, regional unemployment or under-
employment, population, housing Taxation…
“Significant reductions in economic output, income and demand flowing from business closures are likely to result in a decline in revenue to government. This is likely to be most profound where significant out-migration to other regions arises from closures. Reductions in revenue are likely to increase the tax burdens on residents and businesses that remain and/or result in a reduction in services provided.”
Jill Thomas, AGSB
Case studies
Manufacturing and retailTurnover 3.5-15 millionGenerations: 1st – 4th, ownership and
mgt with familySales: 3 cases; Liquidation: 2 cases‘Growing’: 4 cases; ‘Static’: 1 case
Jill Thomas, AGSB
Case study…
Steven Marshall…
Jill Thomas, AGSB
Reasons for family business case study exits…
Over borrowing due to payouts to other family Staff recruitment and management Admin/operational issues – late payments, expired
patents Competition from o/s –pricing and quality Work life balance Family issues – conflict, clashes Payment delays Lack of marketing skills Non-supportive government policies
Jill Thomas, AGSB
‘Losses’ identified in the study…
A loss of entrepreneurial capital and entrepreneurial opportunity
Dilution of the capacity to re-invest in new productive enterprises with the division of proceeds among multiple beneficiaries ie loss to local economy
Employment losses Losses to suppliers of materials and services Financial losses Losses in relation to customers, of intellectual
property, of business efficiency related to the establishment of trust and ‘social capital’,
Jill Thomas, AGSB
Losses (cont)
Loss of unquantifiable benefits to the community and to those directly affected in terms of personal fulfilment.
It is clear that family business closures have an impact beyond those directly involved.
Jill Thomas, AGSB
However…
Some of the positive outcomes:• Growth enhanced with when inefficient and unprofitable
business replaced by profitable ones. (Exits may facilitate using resources more effectively by current or future generations)
• Learning experience from the exit – do things differently next time
• Funds from sale may be invested more productively in other ventures
• Family members ‘released’ from less than functional relationships that they felt trapped by
Jill Thomas, AGSB
Future research
This small case study approach has helped to inform future research and policy development related to family business closure and development.
Undertake a wider study to identify the ways in which the entrepreneurial capital/wealth of families in business can be most effectively deployed for the benefit of its members, employees, the state and the community.
Jill Thomas, AGSB
Conclusion
Concerns about high rates of business ‘failure’ take on new significance when the social and economic impacts of family business closures are better understood.
There is a pressing need, in the context of the ageing of family business proprietors, to better understand what role government might play in helping to ensure that as many family businesses as possible survive generational change and prosper.