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What family businesses can teach other types of company

Author: ICAEW Insights

Published: 24 May 2023

Family businesses have proved to be particularly resilient in the wake of COVID-19, according to PwC. What can other companies learn from family-run firms to drive their own success?

In a year when positive news about business and the economy has been in short supply, PwC provided a glimmer of light near the end of March with its report Transform to build trust. Based on a survey of more than 2,000 family businesses in 82 countries, the report shows that family-run firms have experienced their largest growth increase for 15 years.

In the financial year up to the report’s release, 43% of family businesses around the world saw double-digit sales growth – up from 21% two years ago, according to PwC’s analysis. Significantly, almost three-quarters (73%) of the businesses that saw such growth are built around a clear set of family values, supported by an agreed purpose.

Developing that theme, the report reveals an upward trend in the share of family firms that are leading the way on responsible business practices: of those companies identified as having a purpose directly linked to UN Sustainable Development Goals, half of them saw double-digit growth during the 2023/24 financial year.

Family businesses have also proven to be particularly resilient COVID-19 survivors, with the highest-performing firms distinguishing themselves via three priorities: employee incentives (53%), boards committed to diversity (52%) and strong digital capabilities (47%).

Decisions at speed

For Fiona Graham, Director of External Affairs and Policy at the Institute for Family Business (IFB), authenticity is a particularly strong driver for businesses of this type. “That comes from a family commitment to the longevity of the enterprise and having all the shareholders united around its purpose,” she says. “The advantage here is that you can make decisions at speed if you need to – and, as we saw during the pandemic, some family firms were able to pivot their business models really quickly.” 

In Graham’s view, that agility is complemented by a long-range outlook: “If the senior managers all agree that, as a unit, they’re committed to the business for the long term, they will continue to invest in it even when trading is quite tough – and that includes the sorts of trading difficulties that businesses have seen in the past couple of years that aren’t directly linked to the pandemic. 

“For example, perhaps the owners will decide not to pay out share dividends, because they all understand that being disciplined on that front will bring long-term benefits – not just to the business, but its employees. It’s a different approach to that of dutifully serving shareholders who are just looking for a short-term result, or guaranteed dividend pay-out every year.”

Another financial management advantage prevalent among family businesses is that they tend not to be highly leveraged – so when times do get tough, they will not be as consumed as other companies with the pressure of thinking about how to pay off debt at the same time as facing more macro-level challenges.

“If you’ve reinvested from retained profits,” Graham points out, “that means you won’t have the same obligations around debt as other businesses. So you’ll have a cushion that will give you space to strategise your way through the headwinds. Plus, family businesses are much less likely to take on debt because they don’t want to burden the next generation who will take the firm into the future. They would rather go for sustainable growth that they have financed themselves.”

Expression of loyalty

Matthew Hayes is Managing Director of Champions UK – a marketing agency and business consultancy he co-founded with his father John in 2003. “My mother was also involved at the outset,” he says, “and since then, three sisters and a brother have come into the firm. Our primary service is working with other companies on areas such as positioning and future planning – whether in the context of market-share growth, EBITDA, investment, exit and so on – and a decent subset of those firms are also family businesses.”

For Hayes, what distinguishes the owners of family firms is their commitment. “If you’re employed, it’s a job,” he says. “But if you’re an owner, it’s a life. Being in a family business makes that expression of loyalty easier, because your family unit understands, supports and encourages the underlying drive. A standalone owner may have parents, siblings and even a spouse who doesn’t understand what they’re doing, or connect with the impetus to do it.”

The fundamentals of Champions’ financial management corroborate Graham’s points. “We don’t run a working overdraft, and never have,” Hayes notes. “We have a small amount of mortgage debt against property, in the region of 40% loan-to-value. But otherwise, we’re debt-free. We took very deliberate steps in our early years to build the business brick by brick, which hindered growth at first – but certainly made us more stable.”

Sustaining the future

Hayes perceives some distinct contrasts between Champions’ objectives and those of some of the businesses it helps. “We regularly advise on how to work with the private markets,” he says. “In that context, the owners’ goal is often very clear: to exit around five years from investment, for something north of three to five times capital value. But in a family business, that’s miles from the agenda. The main priority is, ‘Can we build something for the long term that will sustain not just the current family, but the future family, too?’”

In Hayes’s view, one of the biggest downfalls in business is short-termism. “At times of crisis, differences between short- and long-term thinking become most apparent,” he says. “So it doesn’t surprise me that, in the wake of COVID-19, PwC’s figures are so stark. When times are bad, most companies bunker down and hibernate. But we see it as an opportunity to expand and sell our way out of hardship. In each two-year period following the 2008 financial crisis and the Brexit referendum – both times of significant volatility – we doubled in size.”

As family firms continue to strive for stability and growth, Graham says: “The relationship between a family business and its chosen accountant is very important. As the accountant, you will get to know the family as deeply as the business, and become a trusted adviser as well as a first port of call.”

She adds: “Whenever there is a significant change in government policy that affects our members, I will highlight the role that accountants play in disseminating relevant advice, and being pathfinders who will help clients find out the information they need. That relationship is key, because family firms – particularly at small or midsize level – won’t be using loads of consultants to cover off different parts of their operations.”

ICAEW Head of Business Simon Gray says: “PwC’s figures make for welcome reading and highlight that a sense of purpose and clearly communicated values can yield great benefits. 

“During the turbulent times businesses have faced, it’s clear that family businesses have been able to adapt and thrive, while others have struggled to survive. Having a longer-term focus builds resilience and is a key determinant of any successful growth plan. ICAEW Chartered Accountants are proud to play a key role in advising family businesses.”

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