Date posted: 8/05/2020 5 min read

Family business COVID-19 survival guide

Family businesses face some very specific pressures during COVID-19. Here’s the best way to approach them.

In Brief

  • Family businesses have particular characteristics, such as lower debt levels and flexible decision-making, that work in their favour when conditions are tough.
  • Their loyalty to staff and other stakeholders, however, can be a barrier to making the best financial decisions.
  • The family enterprises best handling the current crisis have in place clear communication channels between the family and the business.

By Robert Powell FCA

Australia’s current health and economic crisis is testing the resilience of its businesses, large and small. That includes the nation’s 1.4 million family businesses, which make up about 60% of all trading businesses and employ more than half Australia’s workforce, according to peak body Family Business Australia (FBA).

Family businesses represent a significant sector of Australia’s economy, and they have particular characteristics that enhance their resilience when times are tough.

The federal government’s 2013 Parliamentary Joint Committee report on Family Business in Australia identified attributes including:

  • a risk averse, long-term approach
  • flexible decision-making
  • greater commitment to retaining staff
  • significant contribution to the community in which they operate
  • higher labour productivity than non-family firms.

However, there are some specific pressure points coming up in family enterprises in these stressful times – and there are particular ways to deal with those pressures.

FAMILY ISSUES

Agree on shared values

Families in business need to be able to answer one question collectively: what does the business stand for? Families that have a well understood shared vision and purpose are better equipped to make tough decisions when necessary.

The best-performing firms are those that live and breathe values that are known throughout the family and business. Families that 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.

Communication

The family entities best handling the current challenges have in place clear communication channels between the family and the business.

Communication within a family can be challenging at the best of times, but adding in the complications of a business relationship can amplify tensions – particularly when the business hits a rough patch.

Best practice is to create a forum (for example, 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 (a family charter) is also sensible, given that families rarely make good decisions in panic mode, when emotions are likely to take over.

Connecting with the family business community

The family business community in Australia is remarkable for its willingness to share knowledge and band together in times of crisis. Family firms often get the best advice from other family companies going through a similar experience. Organisations such as Family Business Australia can provide an invaluable opportunity to connect with peers and learn from each other.

BUSINESS

Cash is king

Family companies are typically run in a more conservative fashion than investor-led companies; FBA reports that they carry 50% less debt on average. Nevertheless, family firms need to act now to make sure they have enough cash reserves for the foreseeable future, that is, at least until the end of the 2020 calendar year.

Family companies are often good at building trusted relationships with stakeholders, but at the moment those stakeholders (including customers and suppliers) have their own financial issues and may be making hard decisions about which business to fund and who gets paid first.

“Family companies are often good at building trusted relationships with stakeholders, but at the moment those stakeholders have their own financial issues.”
Robert Powell FCA

Accurate cash-flow forecasting is essential, and the forecasts need to be robust, for example, linking to profit-and-loss and balance sheets. Family companies that under-invest in their finance teams will be most at risk.

Get across the government stimulus measures

Family firms need to be across the various government stimulus measures (JobKeeper, Boosting Cash Flow for Employers, etc) and their varied eligibility criteria. Some of the less talked-about measures include: an apprentice wage subsidy of up to A$21,000 per eligible apprentice or trainee; and the Coronavirus SME Guarantee Scheme where banks are providing partly government-guaranteed loans of up to A$250,000 with a six-month repayment holiday.

The ATO has also announced potential payment deferrals for income tax and activity statement liabilities until September 2020. Similar relaxations of payment terms have also been announced by the relevant Offices of State Revenue, in relation to payroll tax and land tax obligations.

Disaster planning

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 US government’s 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, should one or more key people become incapacitated or otherwise unavailable for an extended period.

Director obligations

Directors of family companies shouldn’t overlook their Corporations Law fiduciary duty to act in the best interests of the company, that is, the business.

I’m seeing an increasing degree of potential conflict for family firms who want to look after their stakeholders, such as keeping people employed despite the financial burden of doing so, or extending credit terms to customers 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.

Robert Powell FCA is national head of Family Office Services at Grant Thornton Australia, and is a Specialist Accredited Adviser member of Family Business Australia.

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