11
STRONG FOUNDATIONS
RECESSION-PROOF
FLYING THE NEST
After the banking collapse in 2008, the proportion of SME family businesses applying for finance rose from 18 per cent to 30 per cent in 2010. SME family firms increased their demand for external finance to obtain working capital, rather than to fund investment projects during the recession.
As demand for credit rose during the recession, the report also indicates that family firms were more successful in obtaining external finance. Of the SME family firms that applied for external finance in 2010, 76 per cent were successful compared to 68 per cent of non-family SME firms.
In 2009 both medium-sized and large family firms had higher ratios of retained earnings to total assets than did their non-family counterparts. This may have been linked to the relative balance sheet strength of family firms prior to the recession and the lower risk taking nature of family firms.
Family businesses also appeared to be less vulnerable to corporate dissolutions; while insolvency rose in family firms, they were lower than for their non-family counterparts. Again, this was perhaps a reflection of stronger balance-sheet fundamentals prior to the recession.
As for future expectations and strategies, SMEs were asked whether they anticipate the closure or full transfer of their business within the next five years. In both the 2008 and 2010 surveys, a higher proportion of family businesses expected the closure or transfer of their business compared to non-family firms. In 2010, 29 per cent of family businesses (860,000 family SMEs) expected the closure or transfer of their business compared to 17 per cent of non-family businesses.
‘Of the SME family firms that applied for external finance in 2010, 76 per cent were successful compared to 68 per cent of non-family SME firms.’
Obviously, the recession did affect family firms’ survival rates. The corporate insolvency rate rose in 2009 for both family and non-family businesses. The increases are significant in proportionate terms, with the insolvency rate of small firms more than doubling to 1.6 per cent, for medium-sized firms more than tripling to 2.67 per cent, and for large firms increasing by over a factor of four to 3.23 per cent.
Although strong foundations and a commitment to future generations mean that family businesses may be more able to fight for survival, the family business sector does need government support in order to prosper in the long term. The general consensus was that government action could help give family firms access to basic support, such as market intelligence. Dr Scholes adds: ‘The ability of family firms to innovate is vital for their survival and the coherence of the family and their culture can enhance innovation and increase survival rates. Families that are too risk averse may limit innovation and have lower survival rates.’ You can read more on Dr Scholes’ work and publications on her staff profile on the Business School website at www.durham.ac.uk/business