Finally, a couple of pieces of research have been published recently which may be of interest.
Institute for Family Business
In June last year the IFB Research Foundation, in conjunction with UCG Report, published a report into “people capital” in family businesses. By people capital, the report means “the strength of knowledge, skills, behaviours, energy, loyalty and commitment which exist within non-family members of a family business”. The report notes that the quality of the people working in a business can create a vital competitive edge and that family businesses need to compete for the best talent. Among the findings of the report are that, in comparison to non-family businesses, employees in owner- managed family businesses see management as more responsive and reliable and report greater loyalty, job satisfaction and a greater
sense of job security. Conversely, the report finds that owner-managed businesses tend to provide less time off for training than non-family businesses and are less likely to implement new HR strategies to improve people capital. The report draws a distinction between family businesses where the family are still actively involved in management and those where they are not and concludes that as family businesses grow and family members cease to be involved in day to day management it becomes necessary to adopt more formal HR practices to improve financial performance. The report points to evidence that the adoption of specific HR best practices (which it calls “high performance work practices”, some of which are listed in the appendix to the report) can significantly affect the financial performance of a business.
Burges Salmon comment
Any growing business needs to assess whether its systems are appropriate to reflect the size and complexity of the business. Understandably, this can take a low priority when all attention is on growing the business, but if it is not done the business may become less efficient as a result. The process of “professionalising” the business as it moves from early stage to an established business is one that owners should assess periodically. We regularly advise on implementing best practice HR and other policies and would be happy to help.
Insider South West
A survey of family businesses in the south west of England, carried out by Insider magazine in October 2013 found that the vast majority of family business who responded confirmed that their aim was to build value for the long term benefit of all of those involved (family, employees and community). 64% of respondents said
that planning and implementing a tax-efficient succession plan was a concern. However, despite the fact that most of the respondents expected a change of ownership or control within the next five years, approximately 70% said that they had no formal succession plan in place.
Burges Salmon comment
In some family businesses it may be obvious who will take over the reins but this doesn’t reduce the need to plan for succession well in advance. Assuming that there is no uncertainty about who will take over (and very often there is considerable uncertainty, which needs to be resolved), failure to plan ahead can lead to serious financial issues. For example,will the retiring family member have sufficient finances for retirement (if not, how will he or she take money from the business and how secure is that income stream?). Another key area is to consider is the effects of inheritance tax, which can cripple a business if it not planned for. Equally, any successor must be properly prepared to take over the business so that performance is maintained. If ownership is to be shared thought needs to be give to how decisions will be made, and what each shareholder expects from the business (for example will some expect a regular dividend?). The important thing is to start thinking about succession as early as possible. The conclusions which you reach may change the way in which you need to develop the business. Succession planning need not be daunting but it does need to be given proper attention.