Australia is facing an unprecedented health and economic crisis which is testing the resilience of its businesses, large and small.
Family businesses represent a significant sector of our economy.
Robert Powell is a Partner in Grant Thornton Australia Ltd’s Private Advisory division. He holds Certificates in Family Business and Family Wealth Advising from the Family Firm Institute, is a Specialist Accredited Adviser member of Family Business Australia, and a Fellow of Chartered Accountants Australia and New Zealand. email@example.com
According to Family Business Australia, the peak body representing these businesses and their owners in Australia, there are approximately 1.4 million family businesses currently operating, representing around 60% of all trading businesses, and employing more than half of the entire Australian workforce.
The Australian Federal Government also recognise the importance of family businesses to the Australian economy.
The Parliamentary Joint Committee report on Family Business in Australia (2013) concluded that Australian family businesses are ‘different and signficant’.
How are they different?
The report suggests a number of characteristics that family businesses typically exhibit:
- a risk averse, long-term approach;
- flexible decision-making;
- greater commitment to retaining staff;
- significant contribution to the community in which they operate; and
- higher labour productivity than non-family firms.
All of these traits improve the resilience of family businesses in a crisis situation.
So, what specific actions should family businesses be prioritising right now?
This needs to be considered under the separate headings of Business and Family.
Cash is King
Family firms need to act now to make sure there are sufficient cash reserves to for the foreseeable future ie at least until the end of the 2020 calendar year.
Running out of cash will put family firms into the worst case position of being beholden to their stakeholders including their bankers, suppliers and customers.
While family companies are often good at building trusted relationships with these stakeholders, bear in mind that these stakeholders will have their own financial issues which might require them to make hard decisions about which business to fund, and who gets paid first.
Accurate cashflow forecasting is essential, and the forecasts need to be robust eg linking to profit & loss and balance sheet, and not works of fiction. Forecasts need to be updated regularly as trading conditions change.
There have been many Stimulus announcements in the past month, and family firms need to be across them as they have come through with often little detail, have sometimes been updated and fleshed out on a daily basis, and have varied eligibility criteria.
Possibly the most relevant are the $130b JobKeeper wage subsidy which provides a $1,500 fortnightly wage subsidy for businesses impacted by Covid-19; and the Cashflow Boost where businesses with turnover up to $50m p.a. can receive ATO credits of up to $100,000 over the next six months.
Some of the less understood announcements include: apprentice wage subsidy of up to $21,000 per eligible apprentice or trainee; and the Coronavirus SME Guarantee Scheme where banks are providing Government-guaranteed loans of up to $250,000 with a 6 month repayment holiday.
The ATO have also announced a number of temporary measures including potential payment deferrals for income tax and activity statement liabilities until September 2020.
Similar relaxation of payment terms have also been announced by the relevant Offices of State Revenue, in relation to payroll tax and land tax obligations.
Family companies will often need the assistance of their trusted advisers to understand and access many of these options.
It will seem counter-intuitive to many, but right now is a good opportunity for family firms to put in place disaster mitigation for the next crisis event…consider the U.S. Government response to the 9/11 disaster, and the impact of the consequent worldwide security enhancements.
Consideration should also be given to succession planning for leadership roles, given the importance of having a robust Plan B should one or more key people become incapacitated or otherwise unavailable for an extended period.
Family companies shouldn’t overlook that directors have a Corporations Law responsibility and fiduciary duty to always act in the best interests of the company ie the business.
Currently we are seeing an increasing degree of potential conflict for family firms who want to look after their stakeholders, such as continuing to employ teams despite the financial burden of doing so, or extending credit terms to customers who they have developed personal relationships with.
Acting in the company’s best interests can be a challenging matter for many family firms who have built up relationships with their stakeholders over many years, and sometimes over generations.
Communicate & Manage Expectations
Families need clear lines of communication, and adding the complications of a business relationship can amplify tensions when the business hits a rough patch. Best practice is to create a forum (eg a Family Council) where families can gather to receive information about the business and ask questions in a safe environment. Pre-agreeing an approach to decision-making via a written set of family policies (eg a Family Charter) is also a good idea given that families rarely make good decisions when in crisis mode, when emotions are likely to take over.
Reconfirm the Shared Family Values
What does your family stand for? A simple question which many family businesses can struggle to articulate.
Families which have a well understood shared vision and purpose are better equipped to make tough decisions when in crisis mode.
This is particularly the case when a 2nd or 3rd generation become involved, as each successive group can potentially dilute the culture and inherent ‘familyness’ of a business.
The firms which perform best in a crisis are those which live and breathe values that are known throughout the family and business.
Families which don’t know or can’t agree on their vision or purpose will be more likely to disagree on key decisions.
Many families find it difficult to define their shared values without assistance from an experienced and impartial external adviser.
Connecting with the Family Business Community
Family firms often receive the best advice from other family companies who are going through a similar experience.
The family business community in Australia is remarkable for their willingness to share knowledge and band together in times of crisis.
Organisations such as Family Business Australia can provide an invaluable opportunity to connect with peers and learn from each other.
By: Robert Powell – Grant Thornton
This article was first published in The Fence magazine.