Most family-owned businesses lack a succession plan for next generation

Fewer than one in five family businesses have a formal plan for passing their enterprises on to the next generation, despite this being key to their futures, a new report says.

Accountants PwC’s 2019 Irish Family Business Report shows that 86 per cent of them expect to grow over the next two years, although most believe that this will be at rates below 10 per cent.

The report shows that just 18 per cent have a formal succession plan in place, even though more than half intend passing ownership and management of their businesses to the next generation of their families.

John Dillon, PwC partner for entrepreneurial and private, noted that 53 per cent of companies intended handing the business on to family, but one third of those had not begun working with the next generation on formal succession plans. Many hoped to transfer ownership within the next five years.

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Mr Dillon pointed out that passing on a business in this way can be complex, particularly as it moved through to the third and successive generations and the families involved became larger.

He warned that failing to prepare for succession could cause problems. “There’s a risk that the succession issue could ultimately distract from running the family business itself,” Mr Dillon said.

Family-owned companies account for a high proportion of small and medium-sized enterprises (SMEs) that make up the bulk of Irish businesses and employ the majority of workers.

Companies such as Musgrave’s, owner of the Centra and SuperValu franchises, and clothing designer Magee, feature in the PwC report, which surveyed 129 businesses with €10.2 billion in combined sales.

Brexit

The UK’s planned departure from the EU remained the most immediate potential threat to Irish family businesses, the report found. Owen McFeeley, PwC director, consulting, said that Brexit affected virtually all firms in some way.

“It’s the area of most concern to them,” he added. Mr McFeeley explained that Brexit concerned them because it affected the market where many family companies sell their products, or because they bought supplies or components from the UK.

Despite the threat, most remained optimistic. One third believed they would grow by taking over or merging with another business in coming years.

Other key challenges that family businesses face include finding workers with the right skills, innovating or keeping ahead of their competition and coping with the growth of digital, either as a way of selling goods and services, or fending off threats to cyber security.