The past few years have been, to say the least, challenging for businesses of all sizes and family businesses are no different. However, for this sector of the business community, navigating their way through the challenges associated with an economic downturn and their ability to adapt to the changing environment have ensured their continued contribution to the EU’s economy as a whole.
A Europe-wide survey of family businesses carried out by the European Family Business (EFB) and KPMG point to the fact that family businesses remain confident in their ability not only to exist but more importantly that they are able and willing to take advantage of opportunities for their continued growth, investment and continuity.
When replying to the question “What is your feeling about the economic situation of your family business for the next 6-12 month?”, in spite of the fact that the past years have been very difficult to all economies across Europe and business confidence has been low, in contrast family businesses seem confident about the future with 54 per cent of respondents indicating that they have a positive outlook for the next six to 12 months.
The biggest surprise was generated by the question ‘What are the major issues that your family business is facing right now?’. The replies showed that access to credit to finance daily business operations featured very low at 11 per cent, with only 17 per cent stating that limited access to credit to finance investments is an issue.
The greatest worries family businesses had related to decline in profitability (38 per cent), decrease in turnover/decrease of volume (32 per cent), legal/political uncertainty (25 per cent) and regulatory framework and gaining skilled staff (23 per cent). This position could be a sign of confidence in respondents’ ability to access different avenues to finance or perhaps a willingness or acceptance for family businesses to self-finance themselves.
Investment remains high on the agenda of family businesses and when asked ‘Does your strategic plan include any investments or divestments?’, the results suggested that for family businesses, investment in the core business (48 per cent) continues to be a priority, with 26 per cent of respondents indicating that they will be investing in internationalisation with only 9 per cent considering divestments. This could be a reflection on measures being taken to reduce risk and exposure but could also reflect the long-term commitment of family businesses to sustainable growth and continuity.
Shortage of funding could represent a key risk for family businesses as limited access to finance could restrict future investment and growth
It is reassuring to note that in spite of the current economic environment family businesses continued to grow during the past 12 months. However, to the question ‘How has your family business been affected by the greater restrictions on access to finance?’ over half of the respondents have experienced challenges to funding, with 19 per cent stating that cash management was a considerable problem.
Another 13 per cent stated that they had problems accessing finance and another 10 per cent related their problems to making new investments or undertaking international expansion. From the respondents, 49 per cent stated that they had experienced no problems accessing finance.
When asked ‘Which of the following financing options do you consider the most attractive in the next six months?’, 46 per cent stated that bank finance (debt) would be the preferred option, with 30 per cent stating that they would resort to use of own equity. Other respondents referred to: entry to alternative markets (eight per cent); alliances (seven per cent); and entry of financial partners by equity (five per cent).
Respondents also referred to their problems accessing bank credit with 37 per cent indicating that their issue was the increase of guarantees needed to secure the loans, 24 per cent referring to the fact that banks had no interest in financing them, 16 per cent each relating to a decrease in amounts granted and interest rate increases, with the remaining 7 per cent citing to other issues.
The issue here is that a shortage of funding could represent a key risk for family businesses as limited access to finance could restrict future investment and growth. While many family businesses have continued to experience success, access to finance will be the key stimulus for future growth and success.
In spite of the difficulties facing family businesses over the last years, they still continued to thrive. What drives their success is highly subjective, but there are common themes which emerge including: Having good governance structures and processes in place scored 72 per cent.
This is further supported by other statistics in the survey such as 60 per cent of respondents indicating that fairness among family members is important as is that of establishing a family code of conduct or constitution with 67 per cent of respondents.
To the question whether a succession strategy is in place, 87 per cent rated preparing and training a successor before handover of leadership as one of their top priorities. In relation to maintaining control of the business, 84 per cent of respondents see maintaining control of the family business as a key driver for success.
This is taken a step further with 54 per cent indicating that they consider maintaining senior roles for family members. The issues of communication between family members across generations and ensuring that they are informed of business issues scored highly in the survey with 86 per cent and 84 per cent respectively.
Future success for family businesses is partly reliant on their ability to meet future challenges. When asked to rank the regulatory changes that they would mostly look forward to, the respondents referred to: simpler tax rules (62 per cent); simplified bureaucracy (59 per cent); simpler employment arrangements (57 per cent); lower state taxes (38 per cent); concessional tax arrangements for inter-generational transfers (30 per cent); and investment to education (28 per cent) among others.
Interesting to point out is the fact that there was a very low priority for government subsidies, possibly indicating the strong fibre that family businesses are made up of, enforcing their ability to work hard and deliver successfully.
www.kpmgfamilybusiness.com
Malta’s input into European Barometer
In 2013, the Malta Association of Family Enterprises (MAFE) was accepted as a member of the EFB.
MAFE is coordinating with KPMG for Maltese family businesses to complete the online survey, which will measure the confidence levels of family businesses, and the opportunities and challenges impacting their operations.
Once the survey results are concluded later on this year, MAFE and KPMG in Malta will hold an information seminar to discuss the outcome and implications.
The survey could be completed online by accessing the following site: http://xs.motivaction.nl/s.asp?u=4BDC2DC689162436D94AB9C9625DEFCC51B81194&l=36
Mario Duca is the president of the Malta Association of Family Enterprises and Tony Pace is a tax partner at KPMG Malta.