Five challenges family businesses face in the future

Five challenges family businesses face in the future

It’s no secret that we’re heading towards a more challenging business environment. Coming on the heels of three years of disruption from a global pandemic, the current financial and commercial situation presents a range of issues for every business, big and small, near or far. Family businesses, however, have always operated in their own unique sphere – one that brings advantages and disadvantages and requires its own strategies.

Kapil Davda explores the challenges ahead for family businesses in the UK, as well as the options available for mitigating the risk to your company and building resilience.

 

1. Rising interest rates

 

Over the last decade, businesses have become accustomed to being able to borrow at cheap rates. This easy access to credit is now shrinking, with recent interest rises from the Bank of England and more likely to come. Smaller family businesses have always had a trickier time accessing traditional funding sources, compared to large PLCs, but now the situation will be amplified. Expect tighter credit conditions, higher collateral demands and lower loan values.

For businesses looking to expand and fund new initiatives, this will unquestionably be a challenge. However, family businesses do have some advantages in this scenario in that they are usually better able to hang on to their cash. With an eye on efficiency and profitability, now is the time to try and keep profit within the business – since family businesses seldom have shareholders there is more scope to do so, but this requires the right systems in place to maximise the capital you retain.

This is the time to take a harsh eye to your processes, your tax planning and growth areas to focus on strategies that will generate, retain and grow revenue,

 

2. Maintaining the right culture

 

As family businesses grow, there is usually a need to bring in more external and professional talent to support expansion. However, this brings its own challenges in terms of maintaining, sharing and evolving the unique culture that made the business a success in the first palace.

Family businesses normally reflect the values of their founders, often operating at a level of instinct and shared understanding built from existing connections. When bringing in external hires, they may find this culture confusing or difficult to navigate, leading to higher employee turnover or reduced productivity among those who don’t feel part of the team.

To solve this, your values, processes and systems need to move from unspoken understanding to fully documented policies. Not only is this useful for on-boarding and training new hires, but it also gives you a chance to re-examine the way you do things, catch any bad habits and bring everybody onto the same page. These documents can also be used as a tool during your recruiting, ensuring that you're hiring people who share your values, who can then play their own role in developing the business.

 

3. The race for talent

It’s no secret that hiring in today’s market is a challenge – the competition for talented employees is fierce, at the same time that cost of living and inflation are putting upward pressure on wages for employers. In this scenario, it’s difficult for smaller businesses to compete with larger rivals when it comes to traditional compensation – bigger companies will always have deeper pockets. But there are still options for family businesses when it comes to getting great talent.

By virtue of their size and culture, family businesses have traditionally had a stronger focus on their people and accommodating the needs of their team. In a time when working habits are evolving, being flexible with your team can make a difference, whether it’s managing time off, non-traditional work schedules or hybrid working. In this regard, smaller businesses may have an advantage over larger, more rigid institutions, finding new ways to make employees feel appreciated.

 

4. Succession planning

For businesses looking to wind up their operations, whether because the company has reached that stage or because they don’t want to push through the tougher times ahead, passing on the business can be a struggle. With family businesses, it may well be the case that the next generation isn’t interested in taking up the mantle, or they may lack the skills and experience necessary.

Luckily, there are a range of ways to pass on the responsibility for the business that can be tailored to your team and your needs. EMI schemes, for example, are a tax-efficient share option scheme aimed at businesses with assets of £30 million or less, ideal for smaller companies. Additionally, moving to an Employee Owned Trust (EOT) structure can help you pass on responsibility while minimising risk and still maintaining a measure of control.

 

5. Investment and cash management

While most businesses will be keeping a close eye on their cash and savings during this period, stopping any investment in your future entirely could backfire. Strategic use of capital can enhance your operations and performance in ways that actually benefit you during a tighter economic market, and beyond. If business is slowing, this can also give you more time to focus on change management and getting systems ready for a new push. Key options to consider include:

•  Digitising your financial tracking and processes to improve cash flow and forecasting visibility.

•  Updating your digital presence, via social media, e-commerce platforms and search to find new sources of leads and business.

• Using remote communications tools to improve your team’s work life balance and expand your potential hiring network.

•  Investing in research and development of new products and service lines

 

Planning for the future of your family business

While the future certainly holds challenges for family businesses, there are advantages to being small, from customer loyalty to tax strategies. The key for making it through the coming period is to focus on your unique position, whether that’s your audience, your relationships or your team, and find a way to make it work for you.

At Haines Watts, we know how important family businesses are to our communities, economy and society at large. We’ve worked with family businesses through all kinds of economic conditions to help them plan, execute and prevail. Our advisors can help you zero in on what works and make the most of it.

 

Get in touch with us to find out how you can build a resilient future for your family business.