FAMILY BUSINESS:A new survey highlights how difficult the recession has been for local family firms compared to similar operations in other countries, writes BARRY MCCALL
THE FINANCIAL crisis has hit Irish family businesses nearly twice as hard as their global counterparts, at least according to the 2010 Global Family Business survey from accountancy firm PricewaterhouseCoopers (PwC), which was carried out in 35 countries around the world in the past three months. The survey reveals that nearly three-quarters (70 per cent) of Irish family firms have seen operating profits fall over the last year, compared to just one-third of such companies globally.
More than two-thirds (68 per cent) of Irish family businesses have seen demand fall, compared to one-third (34 per cent) globally. More than half (57 per cent) have lowered their capital investment compared to just a quarter (25 per cent) globally.
On a more positive note, the majority (70 per cent) of Irish respondents felt that being part of a family business has helped them through the economic crisis.
“The first message from the survey is that the difference in the scale of the challenges faced by Irish family businesses and their global counterparts is stark,” says Paul Hennessy, private company services partner with PwC Ireland. “For example, 68 per cent have seen a fall in demand for their products or services while just 34 per cent of global family businesses have had the same experience. In fact, almost all of the Irish statistics are roughly twice as bad as their global counterparts.”
This is a particularly poor outcome in light of the results of previous surveys. “Previously, Irish firms have been as good as or marginally ahead of the international average so this is quite a change to deal with,” Hennessy says.
Another surprise in the statistics is how few companies are striving for growth in the coming year. “Some 30 per cent of Irish companies are going for growth over the next 12 months,” he says. “That’s just half the number of family firms globally that will be doing so. What this might point to is the fact that larger companies have come through the crisis better than smaller ones.
“Two-thirds of Irish companies surveyed were either first or second-generation owned and they have not had an opportunity to build up the resources to deal with the crisis.”
Small Firms Association acting director Avine McNally says this is an issue that should be taken into account when considering the survey results. “You have to question the direct comparability of surveys like these,” she says. “In countries like France and Germany, family businesses tend to be much larger, and they are able to cope with economic turbulence much better. A lot of small businesses have had huge difficulties with profits and demand falling but that has largely been due to our loss of competitiveness in recent years.”
Mark Fielding, chief executive of the Irish Small and Medium-sized Enterprises association, is not surprised by the findings. “They reflect the state of the economy and they also reflect what we have been saying for some time,” he says. “The major influence has been the economic uncertainty. The second factor is difficulty in getting paid on time and the third is access to finance from the banks.”
Fielding was not taken aback at the results of the survey. “It doesn’t surprise me at all that many of the statistics for Irish family businesses are twice as bad as for international firms,” he says. “The consumer has stopped buying and is now saving €12 out of every €100 that they take home – up from €2 in what we would call normal times. This is reflected in a drop in business spending as well. We are seeing some of our members reporting falls in sales of up to 80 per cent. These are crazy figures but family firms are having to deal with them.”
Hennessy sees a silver lining to the survey results. “Despite these challenging times, many Irish family businesses are looking to the future,” says Hennessy. “Some 30 per cent are striving for growth in the next year with many of them – 41 per cent – expecting the markets in which they do business to improve.
“Almost a quarter, 22 per cent, expect demand for their products and services to increase. Over half (61 per cent) expect to make changes to their business model in the future – no doubt with a view to grasping whatever opportunities eventual recovery will bring. This is very encouraging as it shows that Irish companies are seeking to address it and are looking to develop new strategies to deal with the changed market conditions.”
McNally shares his optimism. “It is in the nature of entrepreneurs to be eternal optimists,” she says. “I did an interview with three entrepreneurs recently and all three of them were very optimistic about the future. They are not looking for handouts. They are just looking for the Government to give them an environment that will allow them to do what they do best. Small businesses have realised that their business models were not working and they have moved quickly to address this. I think there is also a general realisation in small businesses that things have got to change.”
Fielding agrees. “Family businesses, by their nature, are always talking about change. For a lot of them this happens when the generations change within the business but they are constantly preparing for it.”
Hennessy balances this optimism with a note of caution. “After a period of retrenchment, it is encouraging to see Irish family businesses looking to the future including ways to create growth. We found that 70 per cent of companies are planning to invest in marketing and 61 per cent in sales activities,” he says.
“However, less than two-thirds of Irish family businesses have a strategic business plan for the future. Regardless of what these future plans might be, nearly half of Irish survey participants said that they do not have sufficient cash for investment.”
