There are 3 million family businesses operating in the UK, but 90 per cent of them are functioning with no formal family governance structures in place. Here are four ways in which family businesses can stay profitable and plan for the future.
Family businesses are coming under a lot of strain. A lack of succession planning means that more and more family run firms are closing down. Gary Deans, who leads KPMG’s family business practice, examines how business owners can effectively pass down their company.
1. Proper planning
It’s an essential part of development to create clear growth plans and understand how to deliver on them. Of course, there’s a spectrum; from organic growth to external investment or funding to propel growth. As like all businesses, family businesses vary in their key goals. Some are interested in finding a partner to deliver significant extra firepower through a joint venture, and of course there is always the option of a sale if this complements changing family dynamics – from a desire to release the family’s investment, to a lack of family succession routes.
2. Understand the investor
If your growth plans lead towards accessing finance, then you will need to consider your potential investor. Accessing growth capital is a complex matter, and can be even more challenging for family businesses due to the tendency to wish to maintain control, which can limit options. It’s important to understand what an investor or funder will seek, to be clear on what is acceptable to you and the business and, with this in mind, to position yourself attractively to secure the investment or funding sought.
3. Limit the risk
The key point to address is that all investors look for growth to fund their return. You will find that what varies is their attitude to risk, and whether that return is sought in the short, medium or long term. Communicating how the money is to be used and a clear plan for how growth will be achieved – through new markets or new products for example – is vital to maximising your chances to secure funding.
4. Be open-minded
The main cultural obstacle that I see for many family businesses is the need to open itself up to external oversight from an investor. Requirements will vary from relatively basic financial information, to a place on the board and an active role in the running of the business. It is important to evaluate the investor’s likely requests with an open mind; after all they can bring new insights, experience and contacts – which can help a business grow.