Scottish family firms bullish about growth, but may underestimate the impact of short-term challenges - PwC

The global accountancy firm’s eighth Family Business Survey says the sector has experienced a decline in financial performance, with only 60 per cent seeing sales growth over the last year, compared with 73 per cent reported by the 2014 Survey.

Despite the recent slowdown in growth, Scottish and UK family businesses remain bullish about the future and the spectre of Brexit has not impacted their pre-referendum growth forecasts.

PwC found that 93 per cent still anticipate to grow over the next five years, with more than nine in ten (94 per cent) confident of growing their core business in existing markets.

And, although 38 per cent of companies expressed fears as to the impact of Brexit on their business, fewer than half have taken any measures to mitigate the potential impact that leaving the EU may have on their business activities.

Although UK family firms are hopeful of future growth and recovery, their ambitions and expectations lag behind their global counterparts. While 52 per cent of family firms globally expect to develop new markets, only 34 per cent of their UK counterparts anticipate expanding into new country markets.

However, Brexit has failed to dampen their export ambitions as UK family businesses predict that their collective exports, as a proportion of overall sales, will increase from 19 per cent to 24 per cent over the next five years.

Thomas Clark, Scottish family business director at PwC, said: “Despite tough economic conditions, a changing risk landscape and the accelerating pace of change, the family business sector remains vibrant and ambitious, with almost one-in-five (18 per cent) expecting to grow quickly and aggressively.

“Family firms remain a vital part of the UK economy,with leading family businesses offering stability and jobs, a commitment for the long term, and responsibility to their communities and employees.”

Protecting the long term future of the family business is the key goal for respondents in the UK (68 per cent vs 66 per cent globally) and ensuring the business stays in the family is more of a UK than a global priority. (41 per cent vs 30 per cent).

Family businesses also believe they have some advantages over non-family businesses. Eight in 10 think they have stronger culture and values, while seven in 10 feel they are more streamlined, have a quicker decision making process, and take a longer term approach to decision making than non-family businesses.

PwC says that only a quarter of the businesses surveyed over the duration of the eight Family Business Surveys have survived more than three generations – a lesson for families to ensure that they have strategies to bridge the gap between the entrepreneurial vision that created the original business and long-term sustainability under succeeding generations.

And, while 94 per cent of UK family businesses anticipate future growth based on core business growth in existing markets, a mere 11 per cent of UK firms plan to diversify within their core business, and only a third (34 per cent) plan to sell into new countries– well below the 52 per cent of global family businesses planning to expand into new country markets.

In addition, just over half (56 per cent) of UK family firms plan to finance their anticipated growth through external finance - significantly less than the global average of 78 per cent. PwC says companies could find this cautious approach towards utilising outside funding a challenge to their bullish growth ambitions.

The report points to other challenges facing UK family businesses - whilst seven out of 10 feel they are more agile and streamlined in decision making than their non-family counterparts, more than half (52%) expressed concerns around attracting and retaining the right talent to help them succeed and, more broadly, around finding staff with the right skills.

Despite the threat of digital disruption being felt by senior executives across the globe, less than half of the UK firms say they have a strategy fit for the digital age. Despite a similar number recognising the importance of digital, only 54 per cent discuss digital disruption at board level.

Mr Clark said: “Overall, the UK is lagging behind its western European peers in its appetite for exporting to new territories with only a third planning expansion into new markets. Of course, uncertainty surrounding Brexit will have an impact on current thinking around new market expansion for family firms.

“It’s also of concern that so few plan to diversify in their current core markets and have strategies to combat digital disruption. It will be interesting to see how these plans are impacted by new trade agreements being brokered post-Brexit, but overall, it does raise concerns about the future prosperity and potentially the survival of some of these businesses.”

There are two key unique challenges facing family businesses, which are not faced by other non-family owned companies – transitioning the business from one generation to the next and developing family members to undertake leadership roles. Failure to tackle these challenges can ultimately result in a business failing.

Disappointingly, only 13 per cent of family businesses in the UK admit to having have a robust, documented and communicated succession plan in place - and there are no indications this has changed from the findings of previous Family Business Surveys.

A third of family businesses in the UK plan to pass the business ownership (but not the management) onto the next generation, 38 per centwill pass the management on to the next generation while 22 per cent plan to sell or float the business.

Mr Clark concluded: “Family businesses are certainly up for a challenge and those that we speak to feel confident and excited about the future and the opportunity that it poses.

“There is no room for complacency and those that survive from generation to generation focus on robust, strategic planning, taking them from where they are to where they need to be in the long term.

“The family firm has to tackle issues around the family itself. Here the issues are more personal, more complex, and the risks if it goes wrong are potentially terminal - ‘family firm’s fail for family reasons’.”