The past few years have been challenging for businesses of all sizes, however, family businesses' ability to adapt to the changing environment means many have continued to " punch above their weight " in the local economy. At KPMG we believe that there are seven key areas that a family business should consider to operate sustainably.
Running a family business can be a juggling act. Good governance can help balance the needs of the business against the expectations of family members. When the business reaches a certain size /complexity or the founder relinquishes day-to- day control this is often the time to consider formalising business rules and implementing a governance structure.
Achieving sustainable growth is a key objective for any business including family run ones. The main questions to consider are: How can growth be managed? Does the business need to change to cope with growth? Should growth be organic or driven through acquisitions? Whichever route is chosen, the keys to sustainable growth are understanding the market place, producing products or services the market demands and having good systems, processes and controls in place to support this growth.
Risk management is essential to family businesses – risks can come from both internal and external pressures. Externally, the current economic climate is forcing business owners to pay closer attention to major risk factors (such as global recession, currency fluctuations, and tight credit). There are also constant reminders in the press that non-financial risks can have the largest financial consequences. Therefore, a proactive approach to risk management is crucial with accurate performance metrics, maintenance of quality non-financial information in accounting systems and proper due diligence of acquisitions.
When you have built up a successful business you may be keen to give something back. It is wise to set clear objectives around your philanthropic strategy, and ensure you have a thorough understanding of the areas you want to support and how best to support them. To help avoid conflict you should ensure that any family members who operate within the business are aware of your wishes.
It is estimated that 70 percent of family businesses will not survive into the second generation so it’s vital to plan ahead. Starting your succession planning at an early stage can help ensure a smooth handover to the next generation. Consider the time-frames for any handover, how the share ownership should be split and how shares will be acquired.
The family business is a key source of wealth for family member so preserving this wealth is essential. In this context, questions to consider are: Is the next generation prepared for the responsibility of running the business? Can I retire and extract value whilst leaving the business financially viable? Can I pass on wealth efficiently from both a tax and estate management perspective? There are many local families who have successfully passed the business to the next generation by proactively addressing these issues.
Closely bound with succession planning is exit planning. Where the next generation are either unwilling or unable to continue the business then, you may need to consider employing non-family members as managers or selling the business to third parties, possibly employees, competitors or external investors. Overall, we consider that forward planning and flexibility allow family businesses to prosper through good times and bad, and successfully pass wealth from one generation to the next.