Released today, the Australian findings of PwC’s Global Family Business Survey reveal the current thinking - and future outlook - of family business owners, leaders and decision-makers.
With insights from 120 leaders and owners across the country, it’s great to see that family businesses in Australia are more optimistic and ambitious about their growth and economic recovery than their global peers and are emerging from the COVID-19 pandemic in a position of relative strength.
Whilst the overall outlook is positive, for these business owners to fulfil their expectations, they will need to address the challenges and opportunities that come with digital transformation, family governance, and succession planning as well as adopting more sustainable business practices.
Strong ambitions for growth
The survey results show that 71% of family business owners expect to see growth within their business this year, compared to global results (65%). To add to this, a whopping 91% are expecting growth in 2022, compared to 86% of their global peers.
Understandably, the way in which Australia has handled the COVID-19 pandemic is likely to be a factor behind these ambitions, especially compared to other countries globally.
We also think that the agile nature of family businesses has assisted them in weathering the pandemic better than other types of businesses, with family businesses being able to choose to transform on their own terms, more freely than public companies. It’s been impressive to see the countless examples of this in the last year, with gin makers switching to producing hand sanitiser, retailers moving online and hospitality pivoting to unique dine-at-home experiences.
This optimism for growth and economic recovery is remarkable. Especially given the fact that the majority of the family business owners who took the survey did so before news of vaccines. Growth expectations for family businesses for 2022 are even significantly higher than those that we recorded in our 2018 survey results (where we reported 77% expected to see growth, compared to 91% for 2022).
Growth through investment into new markets, products, customer segments, and diversification being the number one priority for the overwhelming majority of family businesses.
We are seeing more cash on family business balance sheets than before the pandemic, and the results show that family businesses are looking to forgo dividends and reinvest back into their business. 70% of our Australian respondents are looking to use their cash to fund growth compared to only 14% looking to access funds from private equity to realise their ambitions.
Behind on the digital curve, but opportunities lie ahead
The second highest priority for Australian family businesses for the next two years was revealed to be improving their digital capabilities. Concerningly, from the results only 15% of family businesses felt that their digital capabilities were strong, trailing their global peers at 38%.
Business owners understand there’s work to do in this space, through the pandemic and the working from home movement, going forward, they do need systems that enable their people to work remotely at times, enabling them to be more agile in business operations.
Technology platforms can also help businesses achieve the diversification growth they are looking for, providing them with access to broader markets and new consumers and opportunities.
With increased agility being linked to 86% of family businesses that have strong digital capabilities - now more than ever family businesses need the access to reliable and timely information that enhanced digital capabilities can provide.
Gaps in governance and succession planning
In the next five years, our results show that we are likely to see one-third of Australian family businesses transitioning to their next generation. This is a huge shift, but with only a quarter of all family businesses surveyed having robust, documented and communicated succession plans in place - it will be a key challenge they face.
An interesting correlation that’s come out in the results also shows that – those family businesses with clear and communicated values are not only better prepared for succession, they also performed better during the pandemic.
It’s really important to ensure that the next generation has the right skills to be able to continue the business successfully. We know that roughly 70% of business and wealth transfers fail when moved between generations. It’s critical that the right leadership and financial skills are built before succession occurs.
From trust to impact: Prioritising environmental, social and corporate governance (ESG)
Among all types of enterprise, family businesses are the most trusted, according to the Edelman Trust Barometer, a leading brand, and communications firm and a family business itself.
Being trusted provides a distinct competitive advantage for family businesses, but this ‘social licence to operate’ is granted by the community, and the trust it relies upon can be lost.
Perhaps the biggest risk to family businesses losing this trust comes from how they respond to sustainability and other ESG issues.
What we see with family businesses is a strong focus on the social element of ESG. Australian privately-owned businesses and high-net wealth family groups are very generous with donations, shown by our results with 77% of those surveyed engaging in philanthropic activity such as contributions to the local community.
Yet, only 36% of those surveyed feel that there was the opportunity for their business to lead the way in sustainable business practices (compared to 55% globally). With public sentiment shifting and 43% of consumers expecting businesses to be accountable for their environmental impacts, we think this needs to be higher on the agenda for family businesses.
If family businesses don’t take steps towards meeting the expectations of consumers and the community, they risk losing the trust granted to them.
The results not only indicate a significant resilience amid the rapidly changing state of the world but are a positive indication of family business leaders looking towards the future. Diversification, transition to next generation, and opportunities to create impact through digital transformation and adopting more sustainable business practices should provide real benefits for private businesses and the economy.
