Australian family businesses falling behind and must plan for succession: PwC

Family businesses in Australia have grown at a lesser rate than the global average over the past year, a report from PwC has warned, with the accounting firm warning family-run businesses should focus as much on innovation as possible.

And while businesses still see succession planning as a high priority, the company says entrepreneurs need to be mindful of how they can transfer ownership in a way that minimises conflict and risk to the business.

"I know there are some clients that are not aware of the potential for conflict, and it's usually because the founder keeps a tight rein on things and usually his or her decision is final," PwC private clients partner Kel Fitzalan told SmartCompany this morning.

"We advocate having family constitutions in place in order to try and avoid those concerns."

The report, which surveyed 2,000 family businesses worldwide and 50 in Australia, found that 56% of local businesses experienced growth over the past year compared to 65% globally. And 26% of businesses shrunk in size, compared to 19% globally.

This makes sense, Fitzalan says, as some industries in Australia have been recording a slower growth rate over the past year.

"That was a little surprising, but it's probably telling. We've seen sectors besides mining and services fall behind, with sectors like retail and construction suffering. It doesn't surprise me we may be behind the global trend."

Succession planning is a big issue, with 38% of businesses saying they intend to pass on management to the next generation. But succession planning is low on the list of company priorities, with Australian businesses citing it as ninth most important.

Fitzalan says it's crucial for businesses to start succession planning sooner rather than later.

"The better transitions occur because the handler is able to take over, but in the majority of cases it's much too late and there's an unexpected event."

"Then you see the next generation confused, unsure of who's actually supposed to be taking over the company."

An unusual finding was that companies placed "innovation" as the third highest priority. Fiztalan says it's important for family businesses to continually chase new ideas and products, as many can become trapped in a consistent way of doing business from generation to generation.

He points to the government's R&D programs as s potential source of inspiration for pursuing innovation projects.

"These are the sorts of things family businesses will have to use to differentiate themselves. They need to have some sort of edge, and a focus on innovation is the way to do that."