Family businesses are surviving, but not thriving

Boardroom Report

Australia's more than two million family business owners are surviving but certainly not thriving, according to a new survey.

The MGI Australian Family and Private Business Survey 2013, undertaken by RMIT University and supported by MGI, reveals a bleak state of affairs – family business owners are becoming increasingly concerned about their future and less than 40 per cent expect the market to improve in the next 12 months.

This year, they are employing fewer people, and more ageing owners intend to keep working as fewer have adequately funded retirement programs. Selling to fund retirement is becoming less of an option because, for many, the sale price of their business has also declined.

To make matters worse, in the past three years, only 24 per cent of family business owners have experienced an increase in profitability and market share. For 76 per cent of them, business conditions have either remained the same or have declined.

Politically, 91 per cent do not believe the federal government is offering them enough support to improve their situation. But they don't have confidence in the opposition either, with 83 per cent feeling that the Coalition will not significantly help them.

MGI chairman Sue Prestney says the survey highlights that over the past decade, family business owners have progressively become more concerned about their financial performance (from 27 per cent in 2003 to 58 per cent in 2013).

"Additionally, today almost 60 per cent of family business owners feel that their children are not interested in taking over the family business," she says. "Daughters in particular, while more inclined to stride out on their own as entrepreneurs, are far less likely to be involved in the family business (nine per cent) than their brothers (36 per cent)."

The survey also showed that the majority of family businesses don't have a formal board of directors and of those that do, around a third only meet annually.

"Over 80 per cent do not have non-family non-executive directors," says Prestney. "Therefore, they are not giving themselves the forum for formally analysing results, conducting risk management and considering their strategy. Having someone on the board from outside with the skills to ensure these things are implemented and followed up will, at the same time, inject a consistent external perspective and discipline."

She notes that despite the tough conditions, less than half of the survey's respondents had a strategic plan and less than half of these had actually implemented it.

"When things are not looking good it is hard to start thinking positively and strategically when you are focused on whether this week's sales will be enough to cover costs and give you some funds to take home. But this is exactly when you need to start to take control and get a new perspective from a suitably qualified adviser from outside the business," says Prestney.

"While taking the time and money to formulate a strategic plan may seem discretionary, it is absolutely critical at times like these. Doing a strategic plan with an adviser who will challenge your assumptions, provide market and industry intelligence and work on options with you is how you start to take control of the situation and create your future rather than just allow things to happen around you.

"On a more basic level, just making sure that budgets are prepared, testing the underlying assumptions and doing sensitivity analysis will at least make sure that the picture of the road before you is as realistic as it can be. This is so important. Without good budgets, which are continually updated for actual results and changed circumstances, you are basing decisions on inaccurate information. This means the decisions are likely to be wrong."

RMIT University's Professor Kosmas Smyrnios outlines 10 questions that family business owners might want ask when preparing for the upcoming year:

  1. How will management deal with the increasing uncertainty and turbulence in national and global markets?
  2. What measures will management put in place to take into account the increasing cost of energy?
  3. Is management utilising technology to its advantage, including the use of Facebook, Twitter and blogging to communicate with customers and capture new markets?
  4. Is innovation, creativity and design of new products and services on the radar?
  5. How is management designing the organisational culture to take advantage of diminishing revenue and enhance the skills of personnel?
  6. Is the HR department hiring individuals that demonstrate the right culture fit in the business?
  7. Is planning and building organisational capability a priority?
  8. To what extent is the enterprise resilient: agile, adaptable and flexible?
  9. Do we have an outline of how the business will move forward?
  10. What is my exit strategy and is it viable, practical and based on realistic expectations? Has this plan been communicated to the relevant people?

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