Guidance on growing a private business, transferring it to the next generation, or selling it.
Family businesses hold a unique position in the economic landscape, valued for their deep-rooted principles, long-term investment horizons, and distinct business cultures. However, these enterprises face unique challenges, such as governance issues and generational transfers, that necessitate constant evolution.
This article delves into the myriad challenges Belgian family businesses encounter and offers insights and strategies for navigating these complexities, drawing from the PwC Family Business Survey FY2023 and expert guidance. The results are publishes in the publication ‘Driving Growth Through Generations’ by PwC and Nancy de Beule, Partner Mergers & Acquisitions at PwC Belgium.
The growth imperative
To sustain family wealth across generations, family businesses typically need to grow by 10 percent every two to three years. In light of recent inflation, even higher growth rates may be necessary. The FY23 PwC survey revealed that 71 percent of family businesses reported growth, with 43 percent achieving double-digit growth. This highlights the resilience of family businesses in challenging times.
Partnering for growth
Historically wary of private equity, family businesses are increasingly recognizing the value these investors bring, beyond just financial support. Modern private equity firms contribute expertise in digitalization, ESG matters, and market expansion, distinguishing themselves from more passive investors. However, families must prepare their businesses and governance structures well in advance to ensure a smooth partnership with external investors.
Mergers and acquisitions
Growth can be accelerated through mergers and acquisitions (M&A). Successful M&A strategies involve:
• Pre-deal: Defining M&A strategy and criteria.
• Execution: Conducting due diligence and structuring deals efficiently.
• Post-deal: Integrating new businesses to maximize value.
Organizational Fitness
Continuous growth demands regular reassessment of business processes to ensure they support the growth strategy. Family businesses should consider:
• Defining strategic focus areas.
• Enhancing business planning and budgeting.
• Attracting external management.
• Optimizing production and supply chains.
• Focusing on digitalization, innovation, and ESG.
Governance and succession
Effective governance is crucial for family businesses. This includes balancing corporate governance structures with family governance mechanisms like family councils and constitutions. Preparing the next generation through education and training ensures they are ready to take on future leadership roles.
Transition and continuity
Successful generational transfers require thoughtful planning. Challenges include differing career paths among children, financial goals of parents, and the need for financial resources to facilitate ownership transfers. A clear succession plan that considers all stakeholders' needs is essential.
Selling the family business
When selling to a third party, family businesses must consider:
• Maximizing deal value.
• Managing tax implications.
• Deciding whether to retain certain assets, like real estate.
Post-sale wealth management
Post-sale, families need to manage their wealth efficiently. Setting up a family office or holding company can help in managing assets, ensuring tax efficiency, and aligning investment strategies with family values and goals.
Emphasizing ESG and responsible investment
Impact investing, which aligns financial goals with personal values and societal benefits, is growing among family offices. Developing a responsible investment policy and prioritizing sustainable development goals are crucial steps.
Conclusion
Navigating the complexities of growth, governance, and generational transition in family businesses requires strategic planning and a deep understanding of both business and family dynamics. By leveraging insights from experts and surveys like PwC's, family businesses in Belgium can thrive across generations, maintaining their unique legacy while adapting to an ever-changing business environment.
Those interested to be able to consult the publication in full, can use the following link.
