NZ’s family businesses face risk without succession plans

picNew Zealand’s family businesses must innovate, attract the right skills and differentiate if they are to remain successful, according to the findings from the latest PwC Family Business Survey.

Findings show 74% of New Zealand’s family businesses have grown in the past year, compared with 53% in Australia and 65% globally. More (94%) are aiming to grow over the next five years compared to 85% of global respondents.

PwC’s Private Business Market Leader Robbie Gimblett says, “New Zealand family businesses are growing and this trend will continue, with New Zealand companies more bullish and their outlook more positive, which isn’t unexpected given our country’s recent economic success.

“To achieve future growth, New Zealand’s family businesses will need to focus on furthering innovation, differentiating themselves and acquiring better talent in order to do this – they simply can’t rely on organic market growth alone, unlike the emerging economies of Asia. We’re seeing this awareness coming through in terms of their priorities for the next five years and ‘heads’ are winning over ‘hearts’, which has been traditionally harder for family businesses to do.”

Businesses surveyed cite profitability and business longevity as their top priorities.

However, the survey uncovered perhaps one of the biggest risks facing family businesses today: succession. Far too many New Zealand family businesses have still not fully grasped this potentially destructive issue, with 57% saying they have succession plans in place for some if not all senior roles. New Zealanders are also leaving it until later on in life with just 17% saying they have a robust and documented succession process in place.

Mr Gimblett warns: “A plan that is not set out in writing is not a plan; it’s just an idea. This is an issue family firms must address because without it, their whole enterprise is at stake. This red flag is creating unnecessary exposure for families and their businesses which should not be ignored. As one of the interviewees said: “Family businesses generally fail for family reasons.”

“Just over half of respondents have a shareholder agreement and procedures in place for measuring and appraising performance, meaning that the other half don’t, and even more than half surveyed have no procedures in place in the event of incapacity or death of a family member or conflict resolution mechanisms. We’re encouraging family businesses to address these risks and to formalise planning to protect their businesses for the future,” says Mr Gimblett.

This year’s survey shows that 25% of New Zealand family business sales are international and this is set to rise to 34% in five years’ time. No New Zealand family businesses expect to be exporting to a significantly larger number of countries than they do now, as they tend to stick to neighbouring countries or those with the same language and similar culture.

“This suggests that they lack either the skills or confidence to break into new regions – many would probably need to hire in outside talent to bridge that gap, and they may well be missing out on new sources of growth as a result,” says Mr Gimblett.

If you’d like to learn more about PwC’s research findings relating to family businesses, download the report at http://www.pwc.co.nz/familybusiness.