Family businesses are in theory better equipped to survive than most. They tend to be able to prioritise long-term goals because the owners usually intend to transfer the business to the next generation. This can be a problem if the heir is not as strong as whoever is on the “throne”.
There exist five challenges unique to family businesses across the world. These have been made worse by the pandemic, but can all be turned into opportunities. It is worth emphasising that the survival of these businesses is vital to us all – they contribute between half and 90% of the GDP of most countries, and employ the majority of people.
Family businesses tend to think of succession as a long process that needs to be methodically planned and executed, but it has been taking place rapidly and unexpectedly during the pandemic. At least 25% of those in charge have suddenly got sick or will leave their business earlier than expected due to the crisis.
Clearly, owners and managers need to be ready to manage such successions. In some cases, the current environment may force them to consider alternatives to a succession within the family, such as an external candidate, or selling or even closing the business.
- Preserving the family feeling
We know from research that having family members working in the business engenders long-lasting personal relationships with employees, customers and suppliers. But these relationships have been disrupted by social distancing and people working from home during the pandemic.
These businesses must therefore redesign their working processes, reflecting deeply on how to preserve their distinctive social edge in a more digital environment that may be here to stay.
- Traditions and history
It is often assumed that family businesses are forward-looking, focused on growing over generations. But the negative outlook and increasing uncertainty brought by the pandemic has led many to instead feel nostalgic for the “golden age of the past”.
Many are trying to leverage their family history and tradition, for example by emphasising longstanding values and past accomplishments to customers. They are also focusing on staying alive rather than pursuing growth.
- Difficult trade-offs
Family businesses are typically motivated by more than financial wealth – in particular, the effects on family members often come into consideration. If the business is in trouble, the management is often reluctant to sack family members .Equally, the management can struggle to bring in outsiders to run the business for fear of undermining the succession plan.
Such decisions can be a huge challenge, often forcing a choice between family harmony and the future of the business.
- Preserving wealth
The owners of family businesses are often viewed as likely to make investments with little or no expectation of a quick return. Hence external advisers usually focus on management or governance and not financial viability.
Yet the pandemic is changing this. Families in business are focusing more on preserving their estate and wealth to survive the crisis. As a result, family offices, which are organisations usually set up by the owners of the firm to manage its assets, are becoming more important and will continue this transformation.
Rather than focusing on short-term concerns, family businesses need to address these five challenges to survive and thrive for the long term.
( All factual and statistical information presented in this blog has been obtained from an extract of an article from the conversation.com ) Follow us on our Facebook page and Family Business Office website at www.familybusiness.org.mt
At the Family Business Office we can offer you assistance in dealing with family business succession planning issues through incentives supporting advisory and mediation services. Contact us today on [email protected].