Having spent most of my career advising family businesses I truly believe they are the backbone of society, especially in out-of-town locations where they provide local employment and community support that helps in boosting the local economy.
The main cornerstone to running such a business is the need to keep on top of the key financial areas. The principal aim may well be wealth preservation for the extended family but this only happens if all the other areas beneath it are considered. This is borne out by the facts that fewer than 10% survive to the third generation and less than 10% of owners are financially independent from their business when they retire.
For family-owned businesses, the value of the business can be far more than just adding up the financial value of the assets. They have an emotional as well as practical and financial relationship with a wider group of stakeholders other than the immediate family involved in the business. They are generally committed to protecting the reputation they have built over many years, as well as enhancing the long-term relationships they have established with employees, suppliers, key customers and with the communities where they live and work.
One great advantage though is that family businesses are able to quickly respond to opportunities and challenges. With no external shareholders to answer to, this allows quick decision-making and flexible responses. They can take a longer-term view with the ability to make long-term investments and avoid temporary ‘fixes’. They are more likely to self-finance investment rather than borrow which enhances their adaptability and decision-making capability.
Unfortunately many family firms lack succession plans, either because the head doesn’t have the desire to admit that he or she will, one day, need to step down, or because there is too much trust in the family to work this out when it becomes necessary. In fact, because of close relationships and long histories, it is of utmost importance in family firms that a strong succession plan is in place.
“What happens when we’re gone?” We all have an instinct to ignore things that make us feel uncomfortable, ‘it won’t happen to me’ and ‘people know what I would want to do’.
Planning for the worst and ensuring sufficient, well-ordered structures are in place, is essential to mitigating the most devastating of risks. This extends beyond simply having insurance to strategically thinking about what might happen to the ownership.
- Who gains control?
- And more importantly, who should have control?
- How will the business trade?
- What could the impact be on profits? Creditors? Future trading?
We work with clients on a whole host of topics to include devising strategies to grow the business, involving all family members in key decision making and considering ways to safeguard and build family wealth. Every family business is unique and each requires different solutions to the challenges they face, whether it be the impact of Brexit or too many family members wanting to have a say in how the business is run. Our business review service, Family Business Connect, provides a structured approach to assist family and owner-managed businesses access understanding, support and guidance.
To begin to look inside your business with a little more clarity and confidence, now and into the future, get in touch with Paul Bray to arrange your initial Family Business Connect review.
Author – Paul Bray, Corporate Tax Partner, PKF Francis Clark, Bristol
Tele: 0117 403 9800