Lack of confidence and succession planning among family firms

A significant percentage of family-run firms in the UK have no succession plan in place. As a result, many expect their business to fall out of family hands within five years, opening up opportunities for outside buyers.

The new survey of 100 UK family-run SMEs, carried out by PricewaterhouseCoopers (PwC), found that 22 per cent expected their businesses to change hands within five years, with a third of these stating that it was likely that their business would fall out of family hands. These statistics show that a growing number of previously family-owned businesses may be put up for sale in the coming years, offering opportunities for buyers who feel they are in the position to grow such businesses.

The main reason for the lack of confidence in the future of the family-run enterprise seems to be the fact that a third of the businesses questioned do not have a succession plan in place.

Many family-run business owners fear the conflict that succession planning could generate. In fact, the future of the business is the top topic of contention among family managers, followed closely by the performance of family members and skills shortages.

There’s no doubt that succession planning can be stressful for family-run business owners. The Institute for Family Business (IFB), however, reports that succession planning can actually help remove stress and pressure and allow businesses to flourish.

Skills shortages can be a major issue for family businesses, explained a report from the IFB published last week. It stated that skills shortages could be made worse by a ‘lack of career opportunities as a result of unintended glass ceilings due to family members taking most of the senior management positions and seats on the board’. Selling a business to an outside buyer removes these limitations and helps the company to attract more talent.

The IFB’s report is intended to help family-run businesses to ensure that the next generation has a chance to take the reins at the helm of family businesses. It also hopes that with the help of its recommended stewardship policies, the next generation will inherit family firms that are in a better condition than they are in today.

Among its main rules for effective stewardship is ensuring that the talents held by various family members are utilised without preferential treatment coming in to the process. It also adds that succession plans will prevent older family members from remaining in their senior positions longer than is beneficial to the business. ‘Good succession planning is therefore not only planning who in the next generation should enter, and when, but also when seniors exit,’ the report added.

The PwC survey highlighted some other concerning figures about the lack of planning among families who run businesses together, with only 61 per cent saying their resources were adequate to allow them to spread assets among their family members who do and do not work for the family businesses. Some other concerning trends included a total lack of awareness about the general performance of family-run businesses. PwC said “a considerable number” of family business owners said they had no idea of the value of their company or their tax liabilities, including corporate or inheritance tax owed. Many added that they had failed to make provisions for death or serious illness among important staff members.

There is no doubt that many family-run businesses could flourish under the leadership of an outside buyer. Indeed, those looking to buy a small business in the coming five years may start to focus on looking for a family sale.

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