We live in a region that is home to one of Australia’s fastest growing urban populations. In addition to the exciting transformation our region is undergoing, we are also on the cusp of experiencing the largest transition of responsibility and wealth that we have ever seen as owners of private and family businesses retire, sell up, or pass the reins on to the next generation – the backbone of our region.
Getting this transfer right is one of the biggest challenges facing both business owners and the broader Greater Western Sydney economy.
If managed well, it will further drive the prosperity of our diverse and ever-growing region. But if mishandled, it could result in a significant destruction of value, erosion of the tax base and rise in unemployment – so it’s vitally important to get these business and wealth transfers right.
If we look at what’s behind the Western Sydney (and more broadly, Australian) wealth transfer, it’s our aging population that’s driving the change.
In 2016, 17.3% of the Greater Western Sydney population was aged 60 years or older, compared to just 14.1% in 2006.
Family businesses will feel the impact of this demographic shift more than most as they already have a high proportion of owners aged over 50.
In fact, data published by the Australian Taxation Office shows that the median age of the group head of family businesses is significantly higher than that of non-family businesses, with 30 per cent being more than 70 years of age.
Privately owned businesses nationwide contribute more than $600 billion to Australia’s GDP –that’s more than a third of our entire GDP – and employ roughly three million people.
It’s estimated that over the next five years, almost 70% of privately owned or family business owners are looking to retire, hand over the reins or sell their business. And of this, an estimated 31% are planning to sell or float and 38% plan to pass it onto the next generation.
However, in our experience, most private and family business owners don’t prepare well enough for this once-in-a-lifetime event and as a result, roughly 70% of all transitions to the next generation fail.
Having a plan to get your business in good financial shape, and with a clear and coherent strategy, is one of the key ingredients to ensure a successful transition, but it’s not just about the financials.
If, for instance, an owner has decided to sell, they often overlook the impact the sale will have on their personal lives, and the lives of their family.
This could involve learning how to manage the increase in wealth that usually accompanies the sale. New wealth can affect owners and their families in very different ways, and not all of them good.
So, business leaders need to start thinking about how they’ll distribute their wealth, how they might invest and spend it, and how they’ll pass it on to the next generation well before they sell.
Another common personal challenge is dealing with the impact of waking up one day and not having the business around.
For many owners, and in some cases their families too, the business has been a major part of their lives for many years, sometimes decades, and the sudden absence of the business can have an unexpected and profound impact on their sense of purpose, identity and well-being.
It’s important for business leaders to start thinking about all these things early, plan how they’re going to spend their time post-business and establish new goals and things to achieve.
Family and private businesses are unique in that they occupy almost every segment and industry of our economy. And as a result, the successful navigation of this wealth transfer is increasingly important.
If we do it right, it has the potential to truly invigorate the local economy with new capital, new ideas and new jobs and open more opportunities for those within our community.
Tamara Brown is PwC Private Clients Partner, Greater Western Sydney.
