But many are not making adequate provisions for the future, new survey suggests
While business confidence is high, two thirds of Irish family businesses 3 do not have a plan outlining the future ownership of their business despite the fact that one quarter of them expect to change hands in the next five years. This is according to the first ever Global Family Business Survey released today by PricewaterhouseCoopers based on almost 1,500 family businesses across 28 countries and including 150 family businesses in Ireland.
Key findings of the survey include:
| |
Ireland
|
Europe
|
Global
|
| |
|
|
|
| Expect value of orders to increase |
67% |
68% |
75% |
| Markets will do better |
51% |
55% |
58% |
| |
|
|
|
| No succession plans |
66% |
51% |
49% |
| Unaware of inheritance tax for heirs |
34% |
32% |
33% |
| No business plans |
33% |
25% |
25% |
| |
|
|
|
Call for simplification of tax rules/
reduction in tax burden
|
76% |
86% |
85% |
| |
|
|
|
| Challenges in next year |
|
|
|
| - Recruitment |
49% |
37% |
42% |
| -Cost control |
32% |
28% |
26% |
| -Product competition |
41% |
39% |
39% |
| -Government policy |
35% |
33% |
33% |
Launching the report in Ireland, Louis Copeland, Managing Director, Louis Copeland & Sons said:
“The report provides a very useful benchmark for family business owners to measure their performance, not only against their peers in Ireland but also on a European and global basis. The report provides useful guidance to family businesses which will help them to address the issues facing them as they tackle the unique challenges posed by the family business ownership structure.”
Dermot Reilly, Business and Wealth Services Leader, PricewaterhouseCoopers Ireland said:
“Family businesses play a crucial role in our economy representing over 75% of all businesses in Ireland. It is interesting to note that the trends for Irish Family businesses are broadly in line with their European and Global counterparts with succession planning being the single greatest threat. This is echoed in our experience as leaders in advising Ireland’s family businesses. A key to their future success is giving ownership succession due consideration including developing a succession plan that provides for a smooth transition in a tax effective and controlled manner.
Passing the family business on to the next generation is difficult, and many companies fail because of a lack of planning. This is a grave oversight, given that creating a suitable new ownership structure typically takes between three and five years and that uncertainty about the future can seriously impair a company’s earnings or, worse still, jeopardise its entire existence.”
The survey reveals that a quarter of Irish family firms are expected to change hands within the next five years with half of these expecting to remain in family hands. Ironically, while many Irish family businesses (66%) have not made adequate provision for the future through drawing up a succession plan, they may be better prepared for other – less predictable – contingencies. For example, sixty-one percent say that they have made provision for dealing with both business and family issues, should a key member or shareholder become incapacitated or die. The survey further reveals that one third of Irish family business owners are unaware of the domestic inheritance tax for which their heirs might be liable.
OUTLOOK
Nearly three-quarters (71%) of Irish family businesses report that demand for their products and services has grown in the past 12 months. Many are, however, wary of growing too rapidly with less than half (44%) having increased their capital expenditure in the last 12 months.
Confidence among Irish family business owners is high. Over half (51%) are confident that the markets in which they operate will do better over the coming year, and over two thirds (67%) expect to see an increase in the value of the orders their companies secure.
Most respondents feel that their companies are well placed to capitalise on new opportunities and are confident that they can compete effectively with the market leaders in their sector citing “customer loyalty” and “product design or quality” as key strengths.
Of some concern, however, is that one third of Irish family businesses report that they do not have a business plan.
Dermot Reilly continued:
“In our experience this is a weakness that could ultimately constrain their ambitions, since a robust commercial strategy and business plan is essential for any organisation that wants to secure additional funding, key personnel or new partners.”
CORPORATE CHALLENGES AND PRIORITIES
When asked what external challenges Irish family businesses thought would most affect their companies over the coming years, 41% cited product competition, followed by Government policy (35%) and market conditions (33%).
Nearly half (49%) of Irish family businesses revealed that difficulties recruiting skilled staff will be one of the biggest internal obstacles they face. As a result, human resources heads high on the list of areas in which they plan to invest over the coming year with 71% saying that their first priority is to hire and train good new employees. Other key investment priorities are sales (82%) and marketing activities (80%).
CONFLICT RESOLUTION
Although a quarter of Irish respondents admit to conflicts over their future strategy with 23% having disagreements about the performance of family members employed within the firm, some 70% have not adopted any procedures for resolving conflicts. Of those who do have measures in place to resolve conflict, nearly a third (32%) reported shareholder agreements to be the most effective.
ECONOMIC AND REGULATORY CHANGES
Over three quarters (76%) of Irish respondents believe simplification of the tax regime and a reduction of the tax burden should be a top priority for Government over the next 3-5 years. They would also welcome increased financial assistance and support from the state for training and staff development (54%) as well as creating closer links with industry and universities for the purposes of product development (52%).
Dermot Reilly concluded:
“Given that the Irish economy is expected to grow at a slowing rate in 2008 the continued creation of a supportive and pro-business environment for this important sector is vital for its continued success. This includes ensuring a tax system that is not overly burdensome and that encourages the early transfer of family assets”.
ENDS
1. Keyfindings in the PricewaterhouseCoopers Global Family Business Survey 2007/08
| Corporate challenges and priorities |
Ireland |
Europe |
Global |
| Demand for products and services has grown in the past 12 months |
71% |
75% |
75% |
| Increased capital expenditure in the past 12 months |
44% |
47% |
49% |
| Increased operating profits in the past 12 months |
56% |
56% |
57% |
| Markets in which the respondents do business will do better over the next 12 months |
51% |
55% |
58% |
| Expect the value of the orders or contracts the respondents secure to increase over the next 12 months |
67% |
68% |
70% |
| Respondents have a business plan in place |
66% |
75% |
75% |
| Respondents who have reviewed their business plan in the last 12 months |
89% |
88% |
89% |
| Respondents who are confident that they can complete effectively with the market leaders in their sector |
97% |
92% |
94% |
Key strengths to surpress their competitors
- Consistent/can win business/customer loyalty
- Product design/quality/range
- Strong brand/market awareness/acceptence
|
26%
19%
8% |
13%
22%
11%
|
11%
20%
11%
|
Key strengths most admire in their competitors
- Strong brand/market awareness/acceptance
- Product design/quality/range
- Size
|
10%
16%
2% |
12%
10%
11% |
11%
10%
10%
|
Main external challenges responding companies will face in the next 12 months
- Product competition
- Government policy regulation/legislation/public spending
- Market conditions
|
41%
35%
33%
|
39%
33%
43% |
39%
33%
44% |
Main internal challenges responding companies will face in the next 12 months
- Recruitment of skilled staff/labour shortages
- Cash flow/controlling costs
- Company re-organisation/company specific issues
|
49%
32%
22% |
37%
28%
29% |
42%
26%
28% |
Top investment priorities of responding companies over the next 12 months
- Sales activity
- Marketing
- Management/Governance structures
- Human resources/training
|
82%
80%
78%
71%
|
67%
60%
46%
69% |
69%
64%
48%
73% |
| Ownership, succession planning and the remuneration of senior management |
Ireland |
Europe |
Global |
| Companies who expect to change hands within the next five years |
24% |
23% |
25% |
| Companies who expect to change hands within the next five years but expect the business to remain in the family |
50% |
48% |
51% |
| Companies who do not have a succession plan in place |
66% |
51% |
49% |
| Respondents who expect family members to assume at least one of the key senior roles within the business |
65% |
66% |
70% |
| Respondents with succession plans in place who think that it is unlikely that the succession plan will create minorities or disenfranchised factions within the family in the future |
84% |
67% |
69% |
| Proprietors with sufficient resources to divide their assets fairly between family members who are involved in the business and those that are not |
72% |
65% |
70% |
| Plans for dealing with business and family issues should a key member or shareholder become incapacitated or die |
61% |
64% |
67% |
| Family business owners who are unaware of the domestic inheritance tax for which their heirs might be liable |
34% |
32% |
33% |
Means of rewarding senior management
- Annual bonus
- Deferred bonus
- Options
|
72%
11%
4% |
35%
25%
4% |
34%
27%
4% |
| Conflict Resolution |
Ireland |
Europe |
Global |
Issues likely to cause tension in the family business
- Future strategy of the business
- Performance of family members
- Decision on who can and cannot work in the business
|
25%
23%
14% |
35%
25%
25%
|
34%
27%
26% |
Responding companies who have not adopted any procedures for resolving conflicts between family members |
70% |
71% |
70% |
The most effective measures family businesses use for resolving conflicts
- Shareholder agreement
- Family council
- Third-party mediator
|
32%
28%
24% |
32%
31%
29% |
30%
31%
27% |
Economic and regulatory changes |
|
Ireland |
Europe |
Global |
Economic and regulatory changes family business would most like to see
- Simplification of the business tax rules and/or a reduction in tax burden
- Better links between industry and universities for product development
- The provision of increased financial assistance and support from the state for training and staff development
- The strengthening of the corporate compliance environment
|
|
76%
52%
54%
41% |
86%
52%
48%
47% |
85%
50%
48%
48% |
2. PricewaterhouseCoopers 2007/2008 Global Family Business Survey is based on 1,454 interviews with small and mid-sized companies in 28 countries worldwide including Australia, Belgium, Brazil, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Mexico, the Netherlands, Norway, Oman, Portugal, Qatar, Saudi Arabia, Spain, South Africa, Sweden, Switzerland, Turkey, the United Arab Emirates, United Kingdom and United States. Interviews were conducted between February and June 2007.
For an electronic copy of the survey, please contact Johanna Dehaene on 01 792 6547 or email: Johanna.dehaene@ie.pwc.com
3. We have defined family businesses as those companies in which at least 52% of the shares are held by a family member or related families, the family members comprise the majority of the senior management team and the owners have a day-to-day responsibility for the management of the business.
4. International Family Enterprise Research Academy, “Family Business Dominate” (2003)
5. PricewaterhouseCoopers (www.pwc.com/ie) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
