Succession planning in SMEs

16
Oct

CIPDNearly 90 per cent of global start-ups funded by relatives

Family firms in the UK need to enhance their business processes to stay ahead of global competition, a report by PwC has found.

Although there are three million family businesses in the UK employing around nine million people, their ambitions pale in comparison to those in other countries, according to The Family Factor: Professionalising the UK Family Firm.

PwC found that only 13 per cent of UK family businesses have a documented succession plan in place, while fewer than one in 10 plan to expand aggressively over the next five years. In stark comparison, 57 per cent of family businesses in China have substantial expansion plans, as do 40 per cent in the Middle East and 40 per cent in India.

The PwC report suggests that UK family businesses have also become more inward-looking; the proportion of them with a strong sense of community responsibility has fallen to 45 per cent from 64 per cent in 2012.

Furthermore, only 16 per cent of turnover among family businesses in the UK is from foreign markets, compared to 25 per cent globally.

Succession planning is another key area where family firms could “upgrade” their approach, according to PwC. Forty-three percent of businesses in PwC’s survey said they planned to pass the business on to the next generation wholesale, with only 22 per cent planning to bring in professional management at the same time.

Many family businesses cited recruiting talented employees as their key challenge over the next 12 months. This may be exacerbated by candidates failing to see the potential for career progression in a family business, said PwC, or by the company lacking the processes or systems to enable them to do their jobs.

According to Sian Steele, a partner at PwC, making tough decisions around committing capital to foreign expansion or selling parts of the original business can be “emotional and divisive,” so this often gets postponed.

“Many businesses today need to survive on thinner margins, identify and address potential threats early, innovate and adapt faster. It’s tough for any business, but it can be an even greater challenge for some families,” she said.

“After weathering the economic storms of the last few years, family businesses are coming out of survival mode and are beginning to look at what they need to change in what’s undoubtedly a harsher business environment,” she added.

Globally, PwC found that 85 per cent of start-up companies are established with family money, and in the majority of countries surveyed, between 50 per cent and 80 per cent of all jobs are created by family businesses.

PwC concludes that, for family businesses to thrive and survive, they must “ensure that family members become effective owners, whether or not they are actively involved in managing the firm”. This means becoming more objective and not making decisions based on emotions or history.

“By professionalising the family, the sector as a whole could reinvent itself, and evolve from a model based on a ‘family business’ to one driven by a new vision of the ‘business family’,” the report advised.

The top three family businesses in the UK by revenue are Swire (an industrial conglomerate), Stemcor (steel) and construction company Laing O’Rourke.

Jo Faragher, PwC, 16/10/2014

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