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Outside advice will help companies survive down the generations

Paul Mulholland, a founding partner at Harbinson Mulholland Chartered Accountants, explains why family businesses should face up to the many thorny issues which could affect the longevity of their enterprises

Published 13/10/2015

What will Northern Ireland's family businesses look like in 25 years time? Probably very different from the way they look now. Over 74% of companies in Northern Ireland are classed as 'family run', but research shows that only 3.2% of them survive beyond the third generation, and that they display lower growth levels than non-family businesses.

So while the local family business tradition remains strong, clearly there are issues which need to be addressed to bridge the gap between the older generation's interpretation of values and vision, and that of their successors.

To 'keep it in the family' in business terms, it is necessary to achieve a complex balancing act which maximises financial performance while maintaining control and assured benefits for the next generation.

In order to ensure future success, the founding generation must pass on the entrepreneurial and commercial capabilities that built the business in the first place.

At the same time, the different skills that the next generation bring to the business need to be recognised and developed.

If you have involved your children in all aspects of running the business, you will have a firm grasp of where their talents lie. Combining common sense with fairness in regard to roles, voting rights and shareholdings will help maintain family harmony.

Growing a business almost inevitably means bringing in senior managers or non-executive directors from outside the family, but this can pose challenges both for family members and for the individuals who are being brought in to the company.

I have come across companies where there are clear tensions between the generations involved in the business - friction can arise, perhaps, around an issue like new technology - and this can be a good time to consider bringing others into the mix.

So often, though, an outsider comes into a senior role only to find that he or she cannot make any real impact because one or two family members maintain total control of the company and its direction. With careful planning, however, the introduction of new blood can make a positive difference.

It's in these kinds of situations that family businesses need to be able to turn to trusted professional advisers. It's the job of accountants and experts to challenge companies to think about the future when it is probably something they wouldn't have done under their own steam.

Another important issue is finance. Family businesses here tend to rely on the banks for their finance and not to look outside of that source.

There has been an aversion to the prospect of equity finance, with the attendant fear of loss of control.

However, in some cases equity finance can help smaller companies grow faster than they would using more traditional finance sources and the investors can also bring additional skills and contacts to the company.

That said, the banks do have a much more positive attitude to lending these days, and we're working with most of them on a day to day basis.

Every business owner should have an exit plan. That's not always something on their minds when they're working hard to keep the business where it should be and sometimes you have to take them out of the business environment for that kind of discussion.

Of course, not all family businesses will have a natural succession and disposal outside the family has to be considered. There are several options available, including selling to a third party, selling it to some or all of the workforce, or just winding the whole thing up.

For anyone considering selling their business in the next 10 years, it is important to start planning now to realise the value of all your hard work and ensure the business is in good shape for sale at the best price and with the minimum tax liability.

External factors are also important. The economic climate seems to be improving, which should help the value of businesses. While other factors may drive the precise timing of a sale, there's no doubt that good timing can yield premium results.

Belfast Telegraph

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