The economic downturn has not affected some family businesses as badly as well known non-family firms; those run by executives who are often driven by short term gains in order to raise the value of the company and take risks accordingly. These firms are the ones that receive the most media attention but the real generators behind most economies are family businesses. They employ the most workers, have strong ties to the community, take on manageable levels of debt and only take risks after careful consideration. Many are firms that have lasted for generations and their intent is to last for many more. This long term thinking is key to why family firms will always weather an economic storm better than their counterparts. The article below from the telegraph.com.uk by Rachel Bridge talks about how, despite the somewhat shaky state of the UK economy family businesses are in better shape than their non family counterparts. David Harland – One of Australia’s Leading Authorities on Family Business
Whenever Giles Barber’s grandfather Jack became infuriated that things were not going his way at his family-owned cheese business, he would throw his hat to the ground and stamp on it.
Giles Barber, the firm’s commercial director and one of six Barbers currently involved in the business, is a passionate believer in the benefits of doing things as a family.
He said: “Running a family business gives you a real sense of purpose. It is much more than just achieving a set of results at the end of a year. We have got a common goal to improve the business for the next generation as well as our own.”
That sense of responsibility extends to employees and suppliers, too. He said: “We have generations of other people’s families that have worked for the business and the 120 farms that supply their milk to our operation are all small farming businesses.”
The Barbers are clearly doing something right – the business now has a turnover of £70m, employs 220 people and supplies its cheddar cheeses to Fortnum & Mason and Harrods as well as every major supermarket chain.
Family businesses have long been the butt of jokes, seen as old-fashioned and slow to react to change or to grasp new opportunities.
But now they are having the last laugh as survey after survey shows they are proving more resilient than other firms in withstanding the impact of the downturn.
A recent report by Credit Suisse found that family firms have generally proved more robust than other private businesses in the face of the economic headwinds, with 60pc of them reporting revenue growth of 5pc or more in 2011.
Its CS Family Business Index of listed family companies has outperformed the stock market by 8pc over the past five years. Meanwhile, the latest report by the Institute for Family Business found that insolvency rates rose at a slower rate for family firms of all sizes than for non-family businesses.
The fact is that the qualities found in family firms are exactly the kind of qualities that the UK economy needs right now. In general family-owned businesses – which account for 66pc of private-sector companies and provide 9.2m jobs – are not keen on burdening themselves with vast amounts of debt, they are slow to shed staff in a downturn, take decisions for the long term, build long-standing relationships with customers and suppliers and, above all, have very strong community links and values that provide the glue for many towns and villages around the country.
John Cooney, head of the Family Business practices at Ernst & Young accountancy firm, said: “Family businesses are one of the most valuable parts of the economy. Everybody should love them.
“They have weathered the recession fairly well, mostly because of their lack of appetite for taking on debt when it was being forced at them during the good times. Without this sector, the UK would be in much more dire straits than it currently is. Ignoring fashion and ignoring expectation in the market has been good for them.”
Harry Knowles is executive director of Furness Enterprise, an enterprise agency in Barrow-in-Furness.
He said: “I want to see more family businesses encouraged. Good family businesses have a tendency to think longer term because they don’t have shareholders breathing down their necks for quarterly results and dividends. They are prepared to invest in the business over the longer period, which those firms driven by more short-term results don’t.”
So what should the rest of the business community learn from all this?
First, that creating a successful business is not just about revenue and profit; it is also about all the intangible stuff that is not measured in monetary terms but still matters a lot. Things such as community, loyalty and creating relationships with employees, customers and suppliers that are built to last.
Second, that prudence can sometimes be a good thing in business. There are other ways to increase the size of a venture than by trading chunks of equity and control for investment funds and it is important to remember that.
Third, that short-term targets are important, but so, too, is having a long-term vision.
Building a business of true value is a journey, not a race – and being properly equipped for the voyage will eventually pay off.
To find out how to best position your family business for the future contact FINH on 07 3229 7333