Managing a family business is a complex task that requires a range of strategies, from immediate cash flow management to succession planning. In recent years, businesses have faced numerous domestic and global market challenges that have forced them to sharpen their focus on cash flow management. Rising interest rates across the Eurozone and inflation soaring globally have made the past 12 to 18 months particularly tough for everyone. Ian Barrett, managing director of Restructuring in KPMG, notes that many businesses across all sectors have experienced additional financial difficulty and simultaneous challenges on an unprecedented scale.
To avoid insolvency, business owners need to prepare and review strategies for financial and cash flow projections regularly. They should closely monitor their trading performance and financial position, stress test their projections for various adverse scenarios, and adjust them based on any favourable or unfavourable events that have arisen since the projections were originally prepared. Businesses should focus on their working capital position, collect debtors quicker, reduce stock levels, and focus on ageing creditors while ensuring manageable credit terms. Immediate steps should be taken to cut costs where possible to reduce losses and minimise exposure to creditors, although this might not always be appropriate depending on the circumstances for the business.
To determine their debt financing requirements, businesses should assess their current asset and financial position. There are various lenders in the Irish market lending to Irish businesses of various sizes, from the traditional pillar banks to newer alternative non-bank lenders who specialise in certain types of lending. There are also several loan schemes available to various types of businesses through the Strategic Banking Corporation of Ireland (SCBI) or administered by Irish financial institutions.
Succession planning is a critical aspect of any family business that cannot be put to one side despite the temptation to prioritise the urgent over the important. Alan Bromell, tax partner and head of Private Enterprise in KPMG, warns that not having a solid succession plan can erode the long-term value of a business. For privately owned businesses, succession planning can have two elements: at a shareholder level (in particular for family-owned businesses) and at a management level. The latter is particularly important where the next generation of family owners are not involved in the business operations, and it is likely external talent is needed to drive the business performance into the future.
The granting of an equity interest of some type to management is now a very common incentivisation or retention tool. Combining management and the next generation in the family as shareholders can bring complex commercial, legal, and tax issues, and it is critical not to overcomplicate. If dealt with early and with the right attention, succession planning can be a key driver in allowing a business to prosper and achieve its strategic ambitions, like growing through M&A. Conversely, if not addressed, it can cause stagnation and, in some cases, deterioration of a business.
In conclusion, managing a family business requires a range of strategies that cover the full spectrum of financial and cash flow management through to succession planning. Business owners need to prepare and review strategies for financial and cash flow projections regularly, closely monitor their trading performance and financial position, and assess their current asset and financial position to determine their debt financing requirements. They also need to focus on their working capital position, collect debtors quicker, reduce stock levels, and focus on ageing creditors while ensuring manageable credit terms. Finally, business owners must ensure they have a solid succession plan in place to avoid eroding the long-term value of their business.