With Australia’s aging population, it’s no secret that over the next 10 to 20 years our nation is going to experience some pretty big challenges driven partly by the baby–boomers’ transition to retirement.
I recently read that Australia’s baby boomer generation comprises 25 percent of the population yet they own 55 percent of the nation’s private wealth. This is a scary statistic. We can only hope that when this wealth begins to transition, the next generation is well equipped to manage and put it to good use. A lot of Australia’s private wealth is tied up in family businesses, which account for around 70 percent of all businesses. They play a critical role in fuelling our economy, its future growth, and are our largest employer. The family business landscape is rapidly changing and continually rejuvenating itself. The deals market is competitive, partly fuelled by low interest rates, an influx of foreign capital and many baby-boomers taking steps to put their businesses on the block, cash in and enjoy retirement. What is exciting is that new family businesses continue to pop up, and many existing businesses with a growth mind-set and clear strategies are expanding through acquisitions. There are two things we know for sure: first, we need our family businesses to continue to grow and prosper, as there are a great many stakeholders hinged on their success; secondly, we need the health of the family itself to improve through effective, meaningful and timely communication. It’s no secret that most family businesses fail because of ‘family’ reasons, not business reasons. Many baby boomers that I talk to are generally aware of the challenges surrounding their business, wealth and mortality, but are unsure of strategies to tackle them. The decision to sell, for example, is not easy and is often a very emotive and personal time for the business owner and their family. For many owners, their business defines them as a person and tells a story about their family. My parents are baby boomers and ran a family business. There was a strategy to sell the business and my brothers and I saw this as our parents’ nest egg, so we didn’t question it. At the time I didn’t realise the emotional toll this had on my father and, looking back, it felt like he aged 10 years the night he announced that the business had been sold. In a reflective moment he said (and continues to do so) that he wished I had taken it on, but in my eyes, I didn’t have a choice; I wasn’t given the option. I don’t regret my decision not to get involved. I would always have had my father looking over my shoulder at every turn, and that wouldn’t have suited me. But the one thing that claws at me is that we never properly discussed this being an option, what it could have been, and I question whether this impacts our relationship today. Particularly now I have moved away from Melbourne. What I learnt to avoid any regrets or conflict down the track is that open communication with family members, and those who are most affected by the decisions, is very important. The great news is that my parents’ business continues today and is going from strength-to-strength, sustaining a number of families and their employees. For Australia’s baby boomers, deciding what to do and when is a critical step requiring an assessment of so many influences: family desires, market conditions, industry stage, financial needs, management, and life after the business to name just a few. I usually tell my clients that a good place to start is preparing a ‘retirement plan’. This is a journey and does not happen overnight. Financial and non-financial factors that define the owner and their family should be put on the table. At a minimum, the following questions need to be addressed: What funds do I need to do the things I want to do in retirement? If I was to sell, what returns do I need to achieve on my investments to provide a steady cash flow for the next 20 years? Is it better for me to retain the business under independent management and get paid a dividend because it provides me with a better rate of return than I would get if I sold and invested in the open market? How much do I want to leave my children? If something happens to my health, what care do I want? A well thought through retirement plan will go a long way towards determining the timing for what happens next. James Blackburn, PwC pwc.com.au