Despite 84 per cent of Australian family businesses being optimistic about sales growth over the next five years, they ranked below global averages in a number of areas critical to their future success.
PwC’s global Family Business Survey found that just over half (53 per cent) of the Australian family businesses surveyed reported sales growth in the last 12 months, behind their global counterparts on 65 per cent.
David Smorgon OAM, PwC’s Senior Advisor on Family, Business and Wealth, said the results provide “smoking gun evidence that Australia’s family businesses are at risk of eroding the value or even derailing the business they’ve worked so hard to achieve.”
“They’re not doing enough to innovate and build blue sky potential in their business or apply simple measures to prevent minor niggles turning into full blown family conflict.”
Almost 2,400 family businesses globally were interviewed for the survey with 90 representing Australia including, John Winning, CEO of The Winning Group, and Dr Tim Cooper, Managing Director of Coopers Brewery – both of who buck the trend.
Struggling to innovate
Like their global counterparts, Australian family businesses perceive the need to continually innovate as their biggest challenge over the next five years.
And while the majority (71 per cent) recognise why they should adapt to an increasingly digitised world, only 57 per cent understand the benefits of digital processes and less than a third (30 per cent) think attracting talent to make the digital conversion is important – compared to 43 per cent globally.
According to Sue Prestney, partner in PwC’s Private Clients team, there are myriad reasons why businesses acknowledge the need to innovate but struggle to act.
“Accessing surplus funds is always a challenge but there are other issues that plague family business. Many owners hold onto their business too long and have lost the passion or risk appetite to take on something new prior to retirement. And then there are those handcuffed by their desire to stick with what’s worked in the past.
“Whether they are private or public, here in Australia or overseas, businesses are chasing the same dollar. Those that fail to respond to global trends will find it difficult to compete and grow.”
More family businesses looking to sell
The survey found that 38 per cent of the Australian respondents planned to sell or float their business, compared to just one in five globally, and only 24 per cent have plans to pass on management to the next generation – a reversal of the 2012 survey where more Australian family businesses wanted to pass on than sell.
Of those planning to sell or float their business, 68 per cent anticipate selling to another company, 32 per cent to private equity investors, 26 per cent to a management team and just 8 per cent aim to float.
“Many owners have been holding on, waiting for more favourable market conditions to cash in and retire. Others who haven’t kept pace with innovation may be struggling to compete and see sale as their only option,” said Ms Prestney.
“Buyers look for businesses that have growth potential: the more opportunity, the greater the bargaining power of the seller. Owners who fail to plan their exit risk leaving wealth on the table when it comes time to sell.”
Passing to the next generation
Less than half (47 per cent) of Australian businesses have next generation family members working in the business including 26 per cent who are senior executives – well behind the global average of 43 per cent.
“The next generation is not only critical to the continuation of the business, but is often the source of necessary transformation through new ideas, new experiences and new energy,” said Ms Prestney.
Succession planning continues to elude family businesses with only 8 per cent of Australian respondents saying they have a robust succession plan in place; compared to the global average of 16 per cent.
Managing conflict
The survey found that Australian Family Businesses performed worse than their global counterparts in the majority of mechanisms typically adopted to deal with conflict including: family council, entry and exit provisions and family constitution.
“At a minimum, all family businesses should have a family constitution. Conflict can easily impact business and family harmony so it’s a good idea to lay the ground rules early,” said Ms Prestney.
“A healthy family business needs a healthy family. Owners need to spend as much time working on the family as they do the business to enable it to flourish,” said Mr Smorgon.
