Challenges for family-owned businesses
01 Nov 2016
Family owned businesses ("FOBs") are big contributors to the NZ economy, and there are many examples in our own community. Those families involved will know how much work and sacrifice goes into creating a business, and it always seems a shame to me to see the number that don't survive to the next generation. There are exceptions of course, but my perception is that the inability to pass on the family business is an increasing phenomenon.
Particularly at this time, with many baby boomers wanting to retire or slow down, business ownership and management succession is becoming a widespread challenge.
Surveys have shown that in NZ, family owned businesses don't last as long as their counterparts in other countries such as Australia, Britain and the USA.
When I first began studying family business 20 years or so ago, I became envious of the strong survival rates in Australia. So it was sobering to read the results of a recent Australian survey that concluded that: "Perhaps the most disturbing factor evident across the past 4 surveys is the bleak outlook for family business owners. There have been dramatic increases in the percentage of owners who are not only concerned for the future of the business, but who also have concerns about the financial performance of their business."
There are many reasons for this, not the least of which is the peculiar difficulties which families face, when compared with non - family owned businesses. These include the management of relationships between family members, ownership and management succession, and remuneration for family members. Particular challenges arise where there are some siblings working in the business, and some that aren't. And frequently, the one child that does work in the business will have committed years of his or her life working for Mum and Dad, often at lower levels of remuneration than his siblings working outside of the business have earned. How then should the ownership of the business be passed on to family members without creating resentments and sibling rivalry?
University of Auckland Business School research suggests that a significant feature of the NZ family business environment is a lack of support for families grappling with the issues they face. In other countries, there are organisations dedicated to providing support to the family business sector, by way of research, education and training, accrediting of family business advisers etc. In NZ, our family business owners frequently have to rely on their own skills, or hunt for advisers that can help them deal with their challenges.
Compounding the challenge is a frequent belief by the family business owner that external advisers will not be able to understand the issues or the family sufficiently to be of assistance. Further, families with relationship challenges will often not want to reveal these personal matters to outsiders.
The University of Auckland research finds that up to 94% of family businesses look to their accountants for advisory services. The most valued advisers to family businesses have been found to be those that can offer not just the traditional range of "hard" side advice such as tax, law and accounting, but also the "softer" aspect of running a family business. These aspects include such things as the setting of remuneration for family members, shareholder agreements, fairness, conflict management, and the establishment and management of personal goals.
Family business owners facing these challenges need to hunt out advisers that have more than the basic technical skills that lawyers and accountants are good at. They must have good relationship skills, a strong empathy, interest and understanding of both the underlying family politics and the business.
PKF Francis Aickin Limited