49% of family firms have no succession plan
More than two-thirds are optimistic about future growth
85% call for a simpler tax system and/or paying lower taxes
21 Nov 2007 – Almost half of family businesses
2 around the world do not have a plan outlining the future ownership of their business, according to the 2007/2008 Global Family Business Survey released today by PricewaterhouseCoopers. This first ever global survey of almost 1,500 family businesses in 28 countries also reveals that this rises to 56% when looking at companies with a turnover of less than €50m a year and 60% when looking at companies that were founded in the last 20 years.
Philippe Bailly, Family Business Survey Global Leader at PricewaterhouseCoopers, says:
“Passing the family business on to the next generation is difficult, and many companies fail because of a lack of planning. This is a grave oversight, given that creating a suitable new holding structure typically takes between three and five years and that uncertainty about the future can seriously impair a company’s earnings or, worse still, jeopardise its entire existence.”
One quarter of the family firms surveyed are expected to change hands within the next five years and 51% of these are expected to remain in family hands.
Moreover, even in many of the companies that have drawn up a succession plan, some of the most important details have not been worked out. Only 48%, for example, have actually chosen a successor.
A surprisingly high percentage of family business owners have also failed to gauge their potential tax exposure. Fifty-six percent of respondents state that they have not had their businesses valued domestically, and 84% of those with a cross-border presence have not had their companies valued internationally within the last 12 months.
While many family businesses have not developed a succession plan or appointed someone to take over the reins when the current head of the company retires, they may be better prepared for other – less predictable – contingencies. Sixty-seven percent say that they have made provisions for dealing with both business and family issues, should a key manager or shareholder become incapacitated or die.
Outlook
Three-quarters of respondents report that demand for their products and services has grown in the past 12 months. Many are, however, wary of growing too rapidly. Only half have increased their capital expenditure in the last 12 months, while 41% have maintained the same level of investment.
Confidence among family business owners is high. Fifty-eight percent are confident that the markets in which they operate will get better over the coming year, and 70% expect to see an increase in the value of the orders their companies secure. Executives in emerging economies are especially positive – 84% anticipate the value of the orders they win to rise in the next 12 months, compared to 63% in North America and 68% in Europe.
“Family firms play a crucial role in the global economy. A measure of their importance is their economic power. Family businesses generate between 35% and 65% of the gross national product (GNP) of the EU member states, about 40-45% of the GNP of North America, between 50% and 70% of the GNP of Latin America, and between 65% and 82% of the GNP of Asia
3.” says Philippe Bailly.
Most respondents feel that their companies are well placed to capitalise on new opportunities and are ‘somewhat’ or ‘very competitive’, citing “Product design or quality” and “Customer loyalty” as their key strengths. Of some concern is that 25% of the respondents report that they do not have a business plan.
Philippe Bailly says: “This is a weakness that could ultimately constrain their ambitions, since a robust commercial strategy is essential for any organisation that wants to secure additional funding, key personnel or new partners.”
Across the world, there are some notable regional differences. Seventy-one percent of respondents in North America and 64% of those in the emerging markets believe that their companies are “very competitive”, for example, compared with just 48% of those in Europe. North American executives also think that they are better at winning business and keeping their customers than their peers in other parts of the world do. Conversely, executives in Europe and the emerging markets are more confident of their ability to design and manufacture good products.
Corporate challenges and priorities
Asked what external challenges they thought would most affect their companies over the coming years, 44% cited market conditions, followed by product competition (39%) and government policy (33%). North American and European executives are more concerned about market conditions than any other external risk (59% and 43% respectively), while those running companies in the emerging markets see the prospect of changes in government policy as a bigger threat (37%).
Forty-two percent of executives say that difficulties recruiting skilled staff will be one of the biggest internal obstacles they face. As a result, human resources heads up the list of areas in which they plan to invest over the coming year. A hefty 73% say that their first priority is to hire and train good new employees, followed by sales activities (69%) and marketing (64%).
Conflict resolution
Although 34% of respondents admit to conflicts over their future strategy and 27% have quarrelled about the performance of family members employed within the firm, 70% have not adopted any procedures for resolving conflicts and two-thirds have no defined criteria for deciding who should be allowed to take an active role in the organisation.
Emerging market companies are more rigorous with regard to choosing which family members should be allowed to take an active role in the organisation. Forty-four percent have established guidelines for deciding who can work in the business, compared to 32% of European firms and 28% of North American firms.
Economic and regulatory changes
Eighty-five percent of respondents believe simplification of the tax regime and a reduction of the tax burden should be a top priority of the government over the next 3-5 years. They would also welcome help in creating closer links with academia for the purposes of product development (50%), a stronger corporate compliance environment (48%) and the provision of more state support for staff training (48%).
Notes to Editor:
- PricewaterhouseCoopers 2007/2008 Global Family Business Survey is based on 1,454 interviews with small and mid-sized companies in 28 countries worldwide including Australia, Belgium, Brazil, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Mexico, the Netherlands, Norway, Oman, Portugal, Qatar, Saudi Arabia, Spain, South Africa, Sweden, Switzerland, Turkey, the United Arab Emirates, United Kingdom and United States. Interviews were conducted between February and June 2007.
For a hard copy of the survey, please contact Rémy Barbeault on +33 4 78 17 84 44
- We have defined family businesses as those companies in which at least 51% of the shares are held by a family member or related families, the family members comprise the majority of the senior management team and the owners have a day-to-day responsibility for the management of the business.
- International Family Enterprise Research Academy, “Family Business Dominate” (2003)
- PricewaterhouseCoopers provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. Our middle market and private company services (PCS) professionals are trusted advisors to tens of thousands of private, medium-sized and smaller organisations around the globe. We have developed dedicated resources who focus on the audit, tax compliance and planning, and business advisory needs of middle market businesses, private companies and their owners.
“PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
