Family business successors typically change strategy and governance

02 June 2016 Consultancy.uk

Next generation leaders of family business are increasingly bringing change to their organisation, in many cases departing from former strategies, governance structures and leadership styles. The new leaders are likely to take more risks, seek to expand into new markets and ramp up innovation to bolster their offerings.

A new study from Deloitte shows that family business succession comes with more change than just a new leader. The report was produced by the Deloitte EMEA Family Business Centre and involved 92 in-depth, face-to-face interviews with next-generation representatives from family-owned companies in 19 countries across the EMEA. The majority of the respondents are generation X or early millennials, with 61% between 30-44 years old and 28% 45 or older, with the majority of the business they would take over being more than 50 years old.

Strategy and leadership style of family businesses
Leadership style
Future leaders of family businesses state that they will bring in a new style of leadership than that of their predecessors. 52% probably will have a different leadership style than their predecessors, while 38% of them will probably run the business differently. Only 9% say that they will probably or definitely not change their leadership style. Since many of the previous generation will continue to have a hand in the business – in their own style – this may well create some tension. 

The respondents are also likely to change the company strategy when they take its reigns. 25% say it is very likely that, once they have all the facts, they will bring in new strategies, while around 30% say they are likely to do so. Reasons for a change in governance, according to the report, include bringing in outside skills.

Risk attitudes of family businesses

Risk taking
As it stands the majority of respondents (51%) suggest that their family businesses tend to be relatively cautious, while 29% say that they are aggressive. Various reasons for limiting risky projects include the possibility of a negative outcome and a reduction in the family’s wealth. The new generation is also likely to, at least initially, throw caution to the wind; in the future, an aggressive attitude is set to take hold at 51% of respondents’ businesses, while 35% say that caution will be their guide.

Innovative leads
Many of the respondents are also keen to make innovation a priority. Around a fifth will make innovation the top priority of their new business, while around three fifths have it in their top three. Only around a quarter have it as a top five or lower priority. The largest cited concern for respondents is expansion into new markets, at 20%, followed by R&D/innovation at 19% of respondents. New technology comes in third, at 17% of respondents, while M&A and staff training & development were both cited by 13% of respondents.

Future innovation of family businesses

Mennolt Beelen, Head of Deloitte's EMEA Family Business practice, states: “We found that in today’s family businesses, a new generation is emerging with many highly qualified young men and women, often with experience in other companies and abroad, ready to face the challenges ahead, such as internationalisation, innovation and digitisation – while maintaining the core family values of the business and respecting the legacy of the generations before.”

Further research into the attitudes of the new generations have been highlighted in recent reports, including a study by EY into the difficulty of grooming succession and from PwC into family business diversity.

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Late payment culture cripples productivity of SMEs

29 March 2019 Consultancy.uk

UK SMEs are seeing their efforts to grow stifled by late payments, causing thousands to enter insolvency proceedings each year. According to experts from Duff & Phelps, this also has a major impact on the UK’s economy, meaning late payment culture must be tackled if the country is to dodge yet more economic stagnation in the shadow of Brexit.

Small and mid-sized enterprises in the UK face a myriad of pressures at present. Brexit anxieties are keenly felt by SMEs, with more than nine in 10 suggesting recently that economic conditions have worsened in the last 12 months. 66% of SME leaders also expect conditions to further worsen in the coming year.

At the same time, firms are keen to see value for money from investing in external expertise. Consulting fees which weight much more heavily on smaller firms, who spend £60 billion per year on professional services, but feel that more than £12 billion of that figure is wasted on unnecessary or bad advice.

Late payment culture cripples productivity of SMEs

Above all, however, SMEs are extremely vulnerable to late payments, and, according to a new study, the situation is only getting worse at present. According to corporate rescue consultancy Duff & Phelps, small businesses in the UK are facing a collective bill of £6.7 billion per annum due to late payments by other companies, while the average value of each late payment now stands at £6,142. This has risen from £2.6 billion in 2017, illustrating the plight of SMEs, particularly with uncertain economic times ahead.

Indeed, the spike in late payments has already caused significant productivity issues for SMEs, which in turn compromises their financial stability. With staff wasting hours chasing down late payments and businesses becoming preoccupied with short-term cash flow problems, they are less able to concentrate on creating new value for the firm, which in many cases gradually slides toward insolvency.

Small businesses across the UK are facing major cash flow pressure, leading to increased financial instability as a direct result of a late payments culture. This is likely a big driver of the UK’s 20% boom in insolvencies over the last three years, especially as it has a knock-on effect on other SMEs within the supply chain of those struggling firms. Approximately 50,000 small businesses fail each year because of late payments, amounting to a shortfall of more than £2.5 billion for the UK economy. 

Commenting on the findings, Paul Williams, Managing Director, Duff & Phelps, said, “In this modern era of technology, which is designed to enable business agility, late payments are particularly galling as there are no excuses. The day of the ‘cheque is in the post’ is long over!... More can be done to avoid businesses reaching this situation in the first place. SMEs underpin the economy, so prioritising timely payments will help allow business owners to focus their time and energy on providing good quality products and services and adding value to the customer experience, rather than chasing outstanding payments.”

The UK Government currently promotes its voluntary Prompt Payment Code to encourage good practice, but late payments by larger companies remain a common pain point for many SMEs. There may be hope for an end to late payments, however, following an announcement in the Spring Statement from Chancellor Philip Hammond. The Government aims to crack down on the practice, with Hammond stating big companies should hire a Non-Executive Director to be responsible for reducing late payments to small suppliers. The statement also advises that organizations publish payment practices in their annual reports.