Profits fall at 70% of Irish family businesses

RECESSION has hit Irish family businesses hard with 70% reporting a drop in profits this year.

That compares with 35% in 2009, a PwC report has found, while over 60% of the firms have no succession plans in place.

Irish family businesses have been hit nearly twice as hard compared to their global counterparts.

It has meant nearly three-quarters of Irish family firms have seen their operating profits fall over the last year compared to just a third globally, according to the global report.

Over two-thirds have seen demand for their products and services fall compared to one third globally.

The study across 35 countries found 57% have cut capital investment against 25% globally.

PwC thought it noteworthy that 70% of the Irish firms surveyed said being part of a family business helped them through the economic crisis.

Despite past experience over a third expect markets to improve next year while over 40% are to boost output in 2010.

Some of the key findings show 84% of Irish respondents believe the major external challenge facing their business is the state of current market conditions, which remain challenging for many Irish family businesses.

Other challenges include competition, government policy, including regulation, legislation and public spending as well as exchange rates. Key internal challenges are cash flow and controlling costs.

The recruitment of skilled staff is a concern for nearly one third of our family businesses, indicating that the downturn has taken its toll on the availability of talent to fill positions.

Companies are also considering a move from short-term bonus arrangements to more sustainable incentive plans that better reflect their key business drivers.

The report found one of the biggest risks facing any family-owned business is the transition from one generation to the next.

Over a third expect to see a change of hands within the next five years, with the majority forecasting the business would stay in family hands by the end of that time span.

Sixty-one per cent of all Irish family companies surveyed have no succession plan in place.

Paul Hennessy, partner of Private Company Services, PwC Ireland, said careful planing was necessary in that area.

“Companies that survive a change of ownership are usually those that have developed good plans, outlining how the succession will take place and what criteria will be used to judge when the successor is ready to take over the reins,” he said.

He warned conflicts over which relative should take over control could be made worse by conflicts over money.