Facing Challenges: While a majority of surveyed companies believe the main external challenges over the next 12 months will be market conditions (56 percent), competitive pressure (34 percent) and government policy (24 percent) - they recognize that significant challenges arise internally as well. Leading their list are labor shortages (49 percent), cash flow management (25 percent), and the need for corporate restructuring to adapt to a fast-changing business environment (24 percent).
A labor shortfall is particularly acute in the U.S., where an entire generation is preparing to retire and the pool of younger replacement workers is smaller. "With the labor pool shrinking, companies will find it difficult to retain their most talented workers, who will have many options in the new marketplace. Employers must begin planning now on how to replace key personnel who will be retiring over the next three to five years. Family businesses in particular need to carefully plan for the future of their company to avoid any potential conflicts between family members involved in the company," says Alfred Peguero, U.S. Family Office Services Leader, PricewaterhouseCoopers' Private Company Services practice.
Succession Planning: Approximately one out of four (26 percent) of the surveyed companies plan to change hands within the next five years, but only half have chosen a successor and a significant percentage (44 percent) do not have a succession plan in place. "Grooming a successor can be a difficult challenge for family owned companies because of the potential for acrimony within the family based on those decisions," adds Peguero. "A good plan will outline how succession would occur and what criteria will be used to judge when a successor is prepared for the job. It will also encourage heirs to work in the business, rather than embark on alternative careers, because they can see what roles they will be able to play."
However, surveyed companies are better prepared to cope with other, less predictable issues, as four out of five companies have made provisions to deal with both business and family issues in the event of untimely death or incapacity of key managers and/or shareholders. "One reason for the high percentage may be that the future of the estate tax has been a leading topic of political debate in the U.S., forcing companies to plan ahead to minimize the tax consequences of passing the business to the next generation if the founder should die prematurely," says Peguero.
"We were surprised that so few respondents reported a significant level of tension resulting from having family members involved in the business," says Peguero. "Based on our experience with these types of companies, we believe there is likely to be slightly more tension than reported, as leaders of family businesses are not always aware of simmering tensions among family members that could erupt into conflict." Additionally, nearly four out of five (79 percent) do not have conflict resolution procedures in place. "These companies may be calling upon objective third parties or advisory boards to help them prevent or resolve conflicts. Simply having a neutral facilitator in the room can diffuse tension. They are often helpful when transitioning the business from one generation to the next," adds Peguero.
