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Managing change through effective planning is crucial to the health of a family business as it faces the challenges of future ownership, talent management, recruitment, remuneration and tax planning. One in four (28 per cent) UK family businesses expected to change hands in the next five years, of which 44 per cent will pass to the next generation in the family. Yet only half (55 per cent) have a succession plan in place and less than one third have chosen a successor (30 per cent in the UK, compared to 48 per cent globally).
According to the 2007/2008 Global Family Business Survey of 1,454 family businesses across 28 countries, published by PricewaterhouseCoopers, strategic direction of the business and performance of family members involved in the business are the two most common issues globally over which family businesses quarrel.
Paul George, partner and family business specialist at PricewaterhouseCoopers, said that UK family businesses have had a successful year and are competing confidently with the leaders in their sectors. Many are facing major internal and external changes, however, and need to plan for them rigorously.
“Passing the family business on to the next generation can be difficult. It is often every bit as challenging as a third party sale. The survey results suggest that many are not facing up to the tough personal choices involved. There is sadly a long history of great family businesses which have failed as a result of sleepwalking into a succession process,” he added.
UK companies are somewhat more open than their international peers to bringing in senior management from outside. One third (34 per cent) of those with succession plans expect successors for key senior roles to come from outside the family, as opposed to 17 per cent globally. Recruitment of skilled staff
The shortage of skilled staff - both at senior levels and throughout the organisation - is of widespread concern with just under two thirds (61 per cent) of the 102 UK companies surveyed saying that it is one of the biggest challenges they face.
To compete effectively for the best talent, family businesses need to be more imaginative in long term reward. Few go beyond conventional annual bonus schemes to reward senior management, with three quarters (78 per cent) of UK companies still using this method, as opposed to 67 per cent globally. This may affect their ability to compete when recruiting. Outlook
Confidence among family businesses in the UK is high. Some 67 per cent of UK companies have reported a growth in the demand for their products and services in the past 12 months, with 70 per cent planning to expand further in the next year.
Many are, however, wary of growing too rapidly. Only 53 per cent have increased their capital expenditure in the last 12 months, while 34 per cent have maintained the same level of investment.
The vast majority of UK companies (93 per cent) feel they are competitive in relation to market leaders in their sector, citing customer loyalty and product design and quality as their key strengths. Corporate challenges
When asked about the key external issues facing their company in the next 12 months, 61 per cent of UK companies cited government policy, regulation and legislation as the most significant challenge. This is almost double the global average of 33 per cent.
Market conditions were also a concern for family businesses (46 per cent UK, 44 per cent globally), as was competition (31 per cent UK, 39 per cent globally).
The survey also showed a consistent plea globally for simplification of business tax rules and for lower tax rates (86 per cent UK, 85 per cent globally).
George pointed out that, as well as taxes on income and employment, family businesses are concerned about inheritance tax (IHT). They see it as effectively another business tax, as it typically has to be funded from the business.
“UK tax policy aims to allow family businesses to manage generational succession without large tax costs. But in practice managing a business so that it gets these tax reliefs can be a difficult and uncertain process, particularly in the face of frequent law changes. What family businesses want from the tax system is simplicity, stability and certainty,” he concluded. Related links
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