With family fortunes tied to the family business, it’s not surprising that family businesses are experiencing change on so many different fronts as a result of the pandemic.
According to KPMG’s 2021 global family business report: Mastering a comeback, most family businesses are experiencing significant change. While some are changing their employee structure and labor costs, others are improving their operational costs. More than 10 percent say they are re-evaluating top management compensation.
According to the report, most every family business has faced significant and rapid change. The report, based on input from more than 3,000 family businesses globally, found that 42 percent of family businesses were likely to deploy a business transformation strategy in the next few months.
Many family businesses I work with have come through the pandemic stronger than ever, while others have really struggled, especially those in the travel industry. Some have seen strong demand and profit growth throughout the economic crisis, including businesses in home improvement, consumer products, grocery and residential real estate. Many family businesses have found ways to cut costs, enhance productivity and tap into new growth opportunities through measures such as reducing office space, reducing staff and increasing use of technology.
Why the urgency?
A long-term approach is what helped many family businesses successfully navigate the pandemic so the natural inclination may be to wait until the dust settles before making any big decisions about the family business.
Yet there are good reasons why they may not want to wait to plan for the future. The first is that many founders and tenured CEOs of family businesses are accelerating their succession plans, largely as a result of the pandemic. I have talked with many family business leaders who believe their final legacy will be their handling of the pandemic. Succession planning is at the top of their agenda.
The second big reason for urgency is that regulatory and tax environments seem likely to change soon. The rumored implications for high net worth individuals and family businesses could be significant.
There are positive reasons for reassessing the future of a family business. Those stimulus plans that may lead to higher taxes can also lead to appealing growth and investment opportunities. For example, if the federal government implements investment incentives around green energy projects as part of the economic stimulus plan, new and exciting opportunities could emerge in the energy sector: renewables and associated services.
There are also great opportunities to grow the business inorganically — through mergers and acquisitions. Some may find, with valuations in flux and increasing availability of capital, that this is an excellent time to snap up rivals, invest in new partnerships and expand their footprints.
I’m working with several family businesses who are now looking to pick up assets in sectors that are new to them but where they know their business acumen and processes can help create amazing value.
This is a great time for family businesses to be thinking about what they want to achieve as a family, what that means for their business and how they plan to get there. Wait too long, and there is the risk of missing opportunities to reshape the future — or worse, family businesses may find their future is out of their hands entirely.
Keys for success
Is your family business still fit for purpose?
Ultimately, family businesses may find that their current structure, strategy and purpose are exactly what they need to thrive in the new environment. Or, they may find that by re-evaluating their business they uncover new ideas and opportunities, allowing the family business to accelerate its growth and achieve its objectives faster.