For family owned businesses, the value of the business can be far more than just adding up the financial value of the assets it owns and operates. Legacy, status, purpose and identity are often highlighted as key elements of worth.
Family businesses have an emotional as well as practical and financial relationship with a wider group of stakeholders other than the immediate family involved in the business. They are generally committed to protecting the reputation they have built over many years as well as enhancing the long-term relationships they have established with employees, suppliers, key customers and with the communities where they live and work.
Because of this, not all decisions made by a family business are based entirely on business criteria. In times of economic downturn and market volatility they are likely to be more resilient and to be more prepared to weather the storm; they are less likely to reduce headcount and more like to retain key employees; and they are less likely to go for extreme cost-cutting measures even when it seems financially prudent to do so.
Family businesses are also able to respond to opportunities and challenges in ways that other business structures can’t. They have no shareholders to answer to, allowing quick decision-making and flexible responses. They can take a longer term view with the ability to make long-term investments and avoid quick but temporary ‘fixes’. They are more likely to self-finance investment rather than borrow which enhances their adaptability and decision-making capability.
Value, therefore, doesn’t have to mean revenue or even profit. Value can be assessed in terms of investment, relationships, development and funding growth. What’s most important is that everyone shares an awareness and can align to views of value, worth, investment and debt. This will be from training and human capital development through to strategic or organic growth.
Whatever you expect for the future of the business, whether it is inter-generational succession, retaining ownership but employing non-family leaders, or selling to a third party, you need to ensure that the business is financially strong and the real value of the business in maintained and recognised. This includes those non-financial attributes such as enduring core family values, of commitment, trust, mutual support and customer service.
A successful future follows incisive planning with a business strategy based on growth. This will ensure the retiring generation is financially taken care of, the incoming generation inherits a viable operation, or potential new owners are impressed with the culture and ethos of the business as well as its business plan and balance sheet.
Family businesses have a special and unique role to play in the economy but ‘family’ and ‘business’ are two very different and often conflicting forms of organisation. An understanding of how a family business survives and remains successful requires an understanding of the dynamics in play, the complex relationships, the shared aspirations, the sources of conflict and the need to continually reassess how to grow and add value.
Every family business is unique and each requires different solutions to the challenges they face that are tailored for their individual needs. Our business review service, Family Business Connect, has been specially designed to assist family and owner managed businesses access understanding, support and guidance.
To begin to look inside your business with a little more clarity and confidence, now and into the future, get in touch with one of our Family Business advisers at PKF Francis Clark and arrange your initial Family Business Connect Review.