Only 50% of family-owned firms have succession plans in place

THE vast majority of Irish family-owned firms believe passing on the enterprise to the next generation poses the single biggest threat to their businesses, yet only half of these companies have formal succession plans in place.

PricewaterhouseCooper’s latest survey of Irish family businesses identifies challenges in key areas such as planning for succession and corporate governance.

“The key threat to all family businesses is succession (94%), yet, only 51% of Irish family businesses were found to have a formal succession plan in place,” said PwC Family Business Services Lead Partner Paul Hennessy.

“Family business owners have not had access to information which allowed them compare their level of preparation for ownership and management succession with either best practice or the related activities and plans of their peer group of companies.

“This deficit of information has left Irish family businesses exposed to the issues and conflict that often arise from the succession process.

“The aim of the report is to examine the issues unique to family businesses and, using information that we obtained from our recent survey, to highlight these issues in an Irish business context,” he added.

Prior to the initiation of the series of PwC surveys the owners and managers of family businesses have limited comparative information against which to benchmark their planned responses to the extra set of challenges arising when family and business issues interplay with one another and thus complete for priority.

The survey found that many of the successful family businesses that have survived for several generations have created family councils to deal with family and ownership issues.

“Such rules remove assumptions and expectations by bringing clarity and particularly if they are family “owned” rules representing the best interest of the family and the family business thereby depersonalising otherwise sensitive issues,” the report states.

“The rules which family and owners create are often referred to as a family constitution. Creating a family constitution lies at the heart of building a base for family business success,” the report states and found that only 20% of families have a constitution in place.

The report indicates that the managing conflict becomes the key to survival of not just the business but the family itself.

“The most successful family businesses in Ireland have made a priority of understanding the dynamics of family relationships, and creating and communicating rules that govern them in order to create both family harmony and commercial success,” the authors state.

The majority, 65%, of participants believed they would require assistance in panning and structuring an effective ownership succession plan.

Most Irish family businesses, 61%, have had a business valuation performed to determine their exposure to capital taxes arising on succession or sale.

However, 12% surveyed also said that they did not have sufficient assets to ensure an equal distribution of assets among the next generation.

The report can be downloaded free of charge from www.pwc.com/ie/bws.