Wednesday 23 October 2019

Irish family firms at risk due to lack of formal succession plans

Fewer than one in five have a documented solution, which could cause problems as businesses grow

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Gavin McLoughlin

Gavin McLoughlin

Fewer than one in five Irish family businesses have a documented succession plan in place, putting them at risk of getting into financial difficulty, according to PwC.

The problem is made all the more acute by the fact that 50pc of Irish family firms plan to pass the company on to the following generation in the next five years, the accountancy giant said in a new report

Having a succession plan written down, where every member of the family is clear about the nature of their ownership, is "very important" said John Dillon, who leads the entrepreneurial and private business division at PwC Ireland.

Succession "can become contentious, and if you have a business which has a real clear growth path, a growth trajectory, it can stifle that for a period of time", Mr Dillon told reporters yesterday, adding that succession difficulties are a "common feature of family businesses".

The survey found 50pc of Irish family business respondents either had no succession plan in place or didn't know if they did.

A third said they had a plan in place but that it was informal.

Mr Dillon said first-generation family firms are less likely to have documented plans in place, as they are less mature and established.

"That's not the period where you see the formalisation and the degree of maturity happen. You'd expect it to follow though once you get to second generation and third generation."

He said compound growth tends to be more difficult going beyond the first generation also, as the businesses become more complex.

Mr Dillon also said that complications can emerge as people marry into the family and children are born.

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"If everybody understands what's happening then that's fine. But when you talk about families from the point of view where it's not just the immediate family, it's in-laws, it's relations. As you go down through the generations people will have different perspectives in terms of what their right of ownership is, and what wing of the family should be driving the business forward. You can't [resolve] that in an informal way."

He advised family business owners to have a conversation with the next generation of the family and see if they are interested in taking on the ownership.

He also said businesses should make sure that the wider family is fully aligned with the plan, and that the next generation should have the right skills and qualifications. A part of that is having a conversation and seeing whether the next generation are interested in taking on the ownership.

The survey, of 3,000 family firms worldwide and 129 in Ireland, found Brexit was the biggest challenge identified by Irish family firms, followed by having access to important skills. Irish firms felt more vulnerable to the effects of the shift of digital. More than half felt vulnerable to a cyberattack, compared to 40pc worldwide.

Despite the uncertainty, however, 86pc of Irish respondents said they expected revenues to grow in the next two years.

A third expected to be involved in a merger or acquisition in the same period.

Irish Independent

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