Family business struggles post-GFC

The complexities involved in operating one of the nation’s two million family businesses have been compounded by the effects of the global financial crisis, recent surveys suggest.

Two separate studies have revealed that internal communication among family members, letting go of ownership control and the feasibility of implementing succession plans were the most critical challenges facing family businesses still uncertain about their future post-GFC.

Last week the MGI Australian Family and Private Business Survey 2010 was released, undertaken by RMIT University and supported by international accounting group MGI.

The survey of 5,000 companies, the seventh in a series conducted by Professor Kosmas Smyrnios, revealed the adverse effects of the GFC on this sector which accounts for more than 97 per cent of Australian businesses, valued at $1.5 trillion, and employs almost half of the nation’s workforce.

Specifically, the study found that almost 40 per cent of respondents suggested the most serious issues confronting family business were communication between family members and relinquishing leadership control, while more than 40 per cent believed that family-based issues were more critical than business-based issues.

However, almost half felt that when these family issues were resolved the business issues could also be resolved.

Although nearly two-thirds agreed that the ultimate challenge was dealing with the addition of business-based relationships on top of pre-existing family relationships.

MGI Perth managing director Bruce Fielding said that more than a third of family and private business owners had significantly reduced confidence in their commercial futures and were reviewing product and service lines, cutting costs, retrenching staff and postponing expansion plans.

“More than 54 per cent of family business owners now have concerns for the future financial performance of the business, compared to 31 per cent pre-GFC,” Mr Fielding said.

The heads of family businesses nationwide also indicated they will remain at the helm for longer than indicated in previous surveys due to succession planning problems combined with individual’s inadequately funded retirement programs increasing from 17 per cent in 2006 to 31 per cent in 2010.

“Family business owners relying on the sale their business to fund retirement are reluctant to sell at current prices, with those considering selling falling from 75 per cent (in 2006) to 61 per cent (in 2010),” Mr Fielding said.

One third stated it would not be feasible to implement leadership succession in their business with 20 per cent suggesting succession was a cause for major concern (as compared to nine per cent in 2006) considering over two-thirds indicated younger generation family members weren’t interested in actively managing the business. More than one third said the current chief was more likely to be succeeded by someone from outside the family.

The survey also revealed that there were few female owners in family and private businesses with only 11 per cent of owners female, and sons five times more likely to take over the business than daughters.

Professor Smyrnios said a surprising result was the low level of female participation as owners and managers had hardly changed over seven years.

RSM Bird Cameron’s fourth ‘thinkBIG’ study into Australia’s small-to-medium enterprises found for the second year running that one in five SME owners have delayed their exit from their business due to economic uncertainty.

The study also suggested that SME owners’ optimism about their business’s future prospects grew modestly despite more than half not expecting to see any improvement in the availability of finance in the short term.