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Annual Guide 2014-2015

at th e hear t

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hu m p it a l

s s te wa rd

an ca &

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e ts

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For Family And Owner Managed Businesses


directory and thanks to... Our Sponsors: Contact details below...

FIB Network Of Advisers: Accountancy And Tax Advice Website: Lead contact: Contact via: Lead contact: Contact via:

Mazars LLP www.mazars.co.uk Gareth Hitchmough (North) 07891 739 208 Alistair Wesson (Midlands) 07557 261 445

Smith Cooper Website: www.smithcooper.co.uk Lead contact: Jackie Hendley Contact via: 07876 860 646

Banking And Finance Business Growth Fund www.bgf.co.uk Website: Lead contact: Lindsey Thomson Contact via: 07876 717 448 One Stop Business Finance Website: www.osbf.co.uk Lead contact: Andrew Mackenzie Contact via: 07766 523269 Yorkshire Bank www.ybonline.co.uk Website: Lead contact: Gareth Jones Contact via: 07879 662 598

Business Coaching & Support Website: Neale Lewis Lead contact: www.nealelewis.com Contact via: 07808 096 166

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Growthaccelerator www.growthaccelerator.com Website: Lead contact: Michelle Connor Contact via: 07825 891 589 Verus Partum www.veruspartum.com Website: Lead contact: Bob Smith Contact via: 07774 474 053 Website: www.vistage.co.uk Lead contact: Steve Gilroy Contact via: 01489 770200

Legal Services Else Solicitors Website: www.elselaw.co.uk Lead contact: Jonathan Tyson Contact via: 07976 373 507 Higgs and Sons Website: www.higgsandsons.co.uk Lead contact: Andy Ball Contact via: 01384 327 335 O’Connors LLP Website: www.oconnorsllp.co.uk Lead contact: John Spofforth Contact via: 07899 947 468

Marketing And PR Website: Lead contact: Chris Hutchinson Contact via: 07968 532 939

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Website: Lead contact: Mel Beeby Clarke Contact via: 0117 905 1177

People, Development & Recruitment Website: Lead contact: Andrew Mackenzie Contact via: 07766 523269 Pertemps Network www.pertemps.co.uk Website: Lead contact: Andy Long Contact via: 07831 788 259

Wealth Management Website: www.brwm.co.uk Lead contact: Richard Wood Contact via: 0121 454 0910 Close Asset Management www.closebrothersam.com Website: Lead contact: Richard Watkins Contact via: 0117 917 0715 Website: Lead contact: Contact via: Lead contact: Contact via:

Mazars Wealth www.mazars.co.uk Paul Smith (North) 07881 283 292 Alistair Wesson (Midlands) 07557 261 445

St James Place - Chris Wilkinson www.sjpp.co.uk/chriswilkinson Website: Lead contact: Chris Wilkinson Contact via: 0121 215 0927


contents...

Directory

01 Foreword By

07 11

John Timpson CBE

03

Summary Infographics Lifestyle Growth

1

To pass on

05

The core issues and focus for family and owner managed businesses including personal, family and business values, purpose, direction and communication.

HUMAN CAPITAL

The role and value of people in family businesses including their dynamics, roles, relationships, skills and support.

16

STEWARDSHIP

20

STAKEHOLDERS

23

ASSETS & ADVISERS

Introduction

04

AT THE HEART

The importance of leadership, governance and future proofing business for tomorrow and the next 100 years as appropriate.

Understanding who the stakeholders are, their hopes, purpose and needs, their roles and what protection should exist.

What’s needed to best support growth and success within family and owner managed businesses.

This guide is dedicated to the memory and legacy of T. Derek Saveker and Cyril Victor Hughes

All rights reserved. ŠFamilies in Business Limited

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fib annual guide 2014-2015


foreword... Well run family businesses are perfectly placed to take advantage of the economic upturn during the next few years. Compared with most other companies they are more flexible, plan further ahead, and unfettered by the stranglehold of institutional shareholders. A few years ago some academic economists produced a paper that suggested family businesses are less efficient and less successful than the rest of the economy. I couldn’t disagree more. People who study management theory seem to think everyone should conform to a 'proper process' or 'best practice'. A family business is free to break the rules and do things in their own way. Far from being a weakness this independence is one of the greatest strengths of a family firm We, at Timpson, notice the difference whenever we acquire a company that has been run by a rigid company regime. The employees are just numbers on the payroll. They are surprised to find we have free company holiday homes and give everyone an extra days holiday on their birthday. They are even more surprised when we visit their shop. It makes a difference to meet the boss especially when he owns the company.

Instead of following a set of rules we trust colleagues to do their job how (and sometimes where and when) they want. Such freedom doesn't suit everyone, it takes a particular type of personality to make the most of working for a family company. By being the majority shareholders families have the freedom to set their own agenda and look a long way ahead. They don’t have the pressure of updating The City every quarter. This works well as long as the priority is for the family to look after the business rather than expecting the business to look after the family. Most important of all the family needs to choose the right leader who in turn can select and work well with a talented successor.

John Timpson CBE, Chairman, Timpson Limited

All rights reserved. ŠFamilies in Business Limited

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introduction... Family businesses are as old as human history and as natural as taking a breath. We have always existed in ‘packs’ or ‘tribes’ working and living together from the cave to the boardroom - some more successfully than others. This is how we are designed.

The animal kingdom is also made up of ‘family firms’ as they exist and hunt in their close communities with the Alpha Male as leader and evolutionary succession at the heart of their survival. Roles and responsibilities were clear with the next generation occasionally clubbing the aging Alpha Male over the head when his time was up – while this form of succession planning isn’t to be encouraged you do have to admire that at least they had a plan! The primitive fight, flight or freeze survival instinct is part of who we are but is now displayed as avoidance, aggression, defensiveness or by burying our head in the sand. None of these are particularly helpful when trying to grow a successful family business. Unfortunately family businesses are a little more complicated as time has moved on. Life is more complex and business is certainly more challenging. If every business has a “life”, at some point it will come to an end - the secret is helping it to have a long and giving life while remaining proactive rather than reactive. This requires us to diversify and remain current and relevant. As business leaders our needs are the same as our forefathers; to know at each point how we’re doing in the eyes of those that matter and to know what’s next on the journey of life and business. That basic feedback is often lacking in our lives and can cause us to feel lost, uncertain and not valued.

This guide has been created following research conducted with UK familyowned businesses with the hope of supporting you as an individual and as a family in business together. It is for you to discuss, think and use as you wish. Guidance has been provided by the advisers within the Families in Business network who are on hand to help give specific help. Always seek your own professional and appropriate advice before making key decisions or actions. Family businesses must discuss, agree and focus on one clear purpose at least – in the example of the Caveman era, this was to avoid being eaten by large predators. If your purpose for example is to build and grow a business for sale it will require a different strategy to a business that’s purpose is to be passed on to the next generation and provide a “lifestyle”. Neither is right or wrong providing everyone’s clear about that purpose. History has taught us about evolution – and that’s a message that came across from the several hundred family businesses that participated in our research. The most successful family businesses don’t stand still and are able to continually review, develop and seize opportunities providing communication is present. Within this guide you’ll spot a range of calls for action as well as each section providing recommended resources, support and specific advisers. All FIB advisers have a greater appreciation for family business needs and a full list of advisers and their contact details can be found on page 01.

think

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discuss

action

fib annual guide 2014-2015


Family Businesses 2014-2015 Summary Infographic 34% do not have a clear purpose for the business

The current focus of business leader’s attention

1

8% have never thought

career, work & business

2

personal relationship

3 4 5

family having fun

6 7 8 9

personal development health & fitness personal thinking time community spirituality

62%

Employees - skills, talent, age, service, etc

61%

Unable to get away from work and

61%

Having the right resources for

Lifestyle Growth

1

To pass on

Just over half feel they rely on food, drink, other action or substance/s to help them cope with the pressures & challenges

Human Capital Current leadership concerns

Those that had considered it stated their purpose as:

about their purpose at all

78% feel they have something to prove (to themselves or others)

home life concerns

At The H

76% find their ability to achieve balance between work and personal life a source of stress, worry or ill health Who manages the finances?

How satisfied family businesses are with external advisers: Most satisfied with their accountants: Least satisfied with their wealth manager/ifa:

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45%

23%

Family member

No FD function

23%

9%

Nonfamily FD

Part-time or outsourced

fib annual guide 2014-2015


Key findings...

- Focus on diversification and future proofing the business - Building and maintaining open communication - Developing top talent - Know and agree the business purpose

69% are fearful about addressing the

he Heart

skills

elephant in the room

58%

s

Gender of the person with most perceived authority 16% in the business

80%

People feel more optimistic about the next 12 months

84%

2014 2013

Stewardship

Only 5% have a

formal succession plan.

22% don’t

believe they need one

Ownership in safe hands?

8%

3

Biggest business challenges for the next 12 months John Timpson, CBE 87%

non-family shareholders

growth family

1 2

Struggle with poor communication

The main business focus for the next 12 months:

Only 16% of family

businesses have protected Shareholders Agreements in place.

92% family shareholders

All rights reserved. ŠFamilies in Business Limited

Sales & marketing

72%

Build value

71%

Profile raising

63%

Only 26%

of family businesses build R & D into their annual budgets

32% don’t believe they need one Stakeholders

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at the heart... “Out of clutter find simplicity. From discord find harmony. In the middle of difficulty lies opportunity.” -Albert Einstein

Resources & Tools: Knowing what’s at the heart of your business and family is important - this underpins the core purpose and values for the business and future direction.

FIB Solutions to help you: - FIB Insight Peer Group Membership - FIB Navigation Consultancy - FIB Check-in Coaching

Shared values enable family members to derive pleasure and meaning from sustaining crossgenerational relationships and striving toward mutual goals.

FIB Tools to refer to (available to FIB members): - 0021: Personal Matrix - 0024: Land of Stuff and Clarity - 0026: Get To The Heart

- 0023: Let’s Have A Plan - 0025: One Vision

When an owning family’s values form the heart of a business’s culture, some vital synergies can arise. In fact, an enduring commitment to values is the greatest strength a family can bring to business ownership.

FIB Advisers to help you (full details page 01): - Aardvark Marketing - Gazelles International Coaching - Verus Partum

All rights reserved. ©Families in Business Limited

- Ambitious PR - GrowthAccelerator - Vistage International

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at the heart... Be Clear About Purpose Everyone involved in a business, large or small, should be on the same page. The founder often has a clear ‘purpose’ and reason for the business to exist – a great idea, brilliant opportunity or simply to provide for his or her immediate family. As businesses grow they often lose sight of a shared purpose and focus.

Having a clearly expressed purpose helps to guide decisions in good times and bad. It helps to steer company direction and often leads to much stronger loyalty from staff and other stakeholders. As a business leader you must know what everyone believes the purpose of your business is to them. Share your thoughts and listen to others.

It’s imperative that a common purpose and direction is discussed and agreed so that everyone knows where they are going and more importantly are pulling in the same direction towards the goal.

Open Communication

34% do not have a clear purpose for the business

8%

have never thought about their purpose at all

Successful communication is one of the most challenging and critical areas for any business, any family and certainly a family in business together. From communication with employees to communication at board level, from stakeholder engagement to the way family members communicate at home and at work. It’s certainly not easy.

Agreeing the purpose of your business binds together the potentially disparate interests of family members into a common strategy which includes the business side too.

1. Why are we in business? What is it’s purpose? 2. What business are we really in? 3. What is most important to me/us about the business?

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addressing the elephant in the room

Over half struggle with poor communication

58%

Discuss together:

For many family businesses, it's not always about the money, the exit or the end goal. Quite often leaders are simply guardians to pass the business on to future generations.

Ask yourself:

69% are fearful about

1. What the business’ core values really are 2. How closely aligned are your purpose & values? 3. Are we asking ourselves enough ‘why’ questions?

Starting out as you mean to go on is essential. By laying down a culture of open, honest and trusted communication – that involves listening as much, if not more than, talking - must be developed and nurtured.

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at the heart... Understanding The Communication Challenge

Put yourself in their shoes...

Common areas of challenge for trusted and open communication: Love & care

Fear

How do YOU see the situation? How do THEY see the situation?

This is a common cause of communication issues. Not wanting to upset someone - which, when left, festers and becomes toxic. It can actually be more harmful than when you feel more negatively about someone. The stakes are higher and with parents, we are programmed to have them accept us and for us to make them proud - so practicing positive and open communication is critical

Why is it important to YOU ? Why is it important to THEM? How do YOU feel about it? How do THEY feel about it?

Our primitive brain controls much of what we do so that it can protect us. It controls our fight, flight and freeze instincts. This can mean someone is seen as defensive because of fear and the threat of attack (fight) or as being in denial (freeze) or state of avoidance (flight). Understanding this can help

Emotional Our emotions are 8 times stronger than our logical human language brain but they don’t have a language and so despite being so

strong and powerful, we can’t always explain why something doesn’t “feel right”.

Controlling Your Mind

want, think and feel. If you’re asked “what are you thinking?” – it’s a tough thing to consider.

conscious

Subconscious mind is to protect us and holds beliefs, emotions etc.

50-60% subconscious

Unconscious mind is to survive & is automatic - much is based on our early experiences

30-40%

Family businesses live with many paradoxes and contradictions. Below are just a few:

...moves slowly

YET

takes quick & big steps

...grows steadily

YET

is often paranoid

...conservative

YET

impulsive

...frugal

BUT

splurges

...has strict hierarchy

BUT

allows employees to push back

Guessing We use our experiences to help us when we don’t have 100% of the information. In other words we fill in any gaps by games guessing the missing information based on a need to protect ourselves (often looking for risks and threats). This often means we’re completely wrong.

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10%

Conscious mind is to understand, uses logic and has awareness.

unconscious

Conscious Our conscious mind accounts for just 10% of what we think. nonsense In other words we don’t always consciously know what we

Who is there to talk to when you are part of your family business? They’re probably who you need to talk about.

Now ask them to answer the same set of questions and compare the answers

Reference from Family Business as Paradox (Schuman, Stutz, Ward)

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Grow your business further with GrowthAccelerator You’ve already built a thriving, successful company and you’re ready for your next big phase of growth. But do you know how to get there? Contact Michelle Connor on 07825 891 589 or email michelle.connor@growthaccelerator.com to find out how. GrowthAccelerator can help you to: Build a successful growth strategy Discover new routes to funding & investment Unlock your capacity for innovation Harness the power of your people www.growthaccelerator.com

All rights reserved. ©Families in Business Limited

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fib annual guide 2014-2015


human capital...

An empowered organisation is one in which individuals have the knowledge, skill, desire, and opportunity to personally succeed in a way that leads to collective organisational success.

Human capital, refers to the knowledge, abilities and skills that reside within a company. With family businesses this is can be provided by kin and non family. Together they hold unique challenges and opportunities.

Resources & Tools: FIB Solutions to help you: - FIB Insight Peer Group Membership - FIB Navigation Consultancy - FIB Check-in Coaching - FIB Compass Diagnostic and Health Check

FIB Tools to refer to (available to FIB members): - 0020: Pictures Say A Thousand Words - 0033: Achieving Perfection - 0036: Passengers

- 0032: Perceptions - 0035: Resilience - 0040: Life Line

FIB Advisers to help you (full details page 01): - Gazelles International Coaching - Part Time Executives - Verus Partum

All rights reserved. ŠFamilies in Business Limited

- GrowthAccelerator - Pertemps Network - Vistage International

The presence and long-term involvement of family can have both positive and negative effects. Across time, family can develop unique industry-specific knowledge that can be transferred from one generation to the next. More importantly, research shows that business families can also develop unique entrepreneurial mindset including the knowledge, passion and skills needed to run a business in the long-term. This however isn’t a given. On the downside, the family context can hamper the ability to attract and retain highly qualified non family talent which is essential to create a successful team.

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human capital... Getting The Best

Where’s Your Focus Of Attention?

Family businesses are, in general, viewed as an employer of choice. They are known for being caring with strong values but they are equally challenged by complacency and failing to remain nimble.

Modern life causes us to often confuse our priorities and the most precious thing - time - is not valued. The survey highlighted that we place FUN half way down our list of priorities with other critical areas including personal development and well-being being below that.

‘Suddenly’ Takes Years It’s very rare that things go wrong ‘suddenly’. There’s usually one tipping point that sits upon years of failing to tackle issues when they occur. At the time each neglected issue is small and minor but together they cause a big problem. Through building a diverse and talented workforce with clear roles where individuals are empowered eases the chances of “suddenly” happening. Open communication is at the heart of this.

Family And Owner Managed Business Leaders Focus Of Attention

The risk of loyalty... What’s the average age of your worksforce? What’s the average service of your workforce? Are you happy that these numbers give you a competitive edge and will support your growth and future strategy?

most focus career, work and business

partner/ personal relationship

home life issues

family having fun personal development

Break The Mould To create the best and most appropriate team for your business to succeed it’s vital to build a diverse team with clear roles and responsibilities.

health & fitness personal thinking time

community

Pertemps explain: “one of our major clients was struggling to attract a diverse workforce and were typically recruiting people in the same mould as the managers who were involved in the hiring process. Diversity was seen as an important requirement to add fresh ideas to the business. We presented it’s case study around Leadership and Inclusivity which is an essential pre-requisite if you are to have a truly diverse workplace.”

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spirituality

least focus

Tumours can grow in family businesses. Some fail to spot them, others are in denial. Left untreated that can become terminal.

fib annual guide 2014-2015


human capital... The Art Of Balance And Blend

Talent And Desire

Human capital is vitally important for a business to succeed. People are therefore an asset to be developed and looked after meaning that wellbeing is of paramount importance along with skills and roles.

The challenge of having the necessary skills and talent on hand to grow and develop successful family businesses can remain significant. Our research shows that it remains one of the main obstacles in family businesses.

For family and executives in the business finding balance between home and work in the family business is one of the biggest personal challenges leaders face. Where can you offload and gain support? Finding a feeling of contentment is very much an individual thing and it’s about having the right blend that works for you (and your family). Many people take work home and over the weekend. If they were to stop this it can create a worse situation. Find the right mix that works for you – but it must also work for your partner/family. If you fulfill your needs but your partner/family feels resentment then sooner or later you will pay the price.

76%

find their to achieve

ability balance between work

and personal life a source of stress, worry or ill health

Just over half feel they rely on food, drink,

other action or substance/s to help them cope with the pressures & challenges

“You will never find time for anything. If you want time you must make it”

All rights reserved. ©Families in Business Limited

Understanding what you need in terms of talent, making sure this is openly discussed and agreed and then appointing willing people to meet this requirement is essential. You can’t always recruit from within the family - and neither should you if they aren’t willing or able - and so alternatives should be considered. At board level skills can be found at a fraction of the full time cost if you look at starting with a part time solution or interim director.

Why People Leave The most common reason employees and family give when leaving a job is nothing to do with pay or remuneration. Key areas include: - Bored and unchallenged by the work itself - Relationships with co-workers are challenging - Relationship with the boss (including feedback etc) - Opportunities to use skills and abilities - Contribution of work to the business goals - Autonomy and independence - Meaningfulness of job - Lack of communication between family members - Unclear roles and responsibilities especially for family members - Distraction and atmosphere caused by fighting family members - Non family employees unable to progress or have ownership - Frustration with the older generation not letting go in time

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fib annual guide 2014-2015


human capital... Family Business Leader’s Biggest Concerns

With your team... 62%

61%

61%

Employees - skills, talent, age, service, etc

Able to get away from work and relax

Resources for growth

59%

53%

51%

Attracting or retaining senior talent

Trusting outsiders

Business impacting on family relationships

50%

50%

50%

Agreeing what growth and success looks like

Being able to do what I want to

47% Family issues/attitudes impacting growth

1. Do you know what is expected of you at work? 2. Do you have the materials and equipment you need to do your work right? 3. At work, do you have the opportunity to do what you do best every day? 4. In the last 7 days, have you received recognition or praise for doing good work? 5. Does someone at work, seem to care about you as a person? 6. Is there someone at work who encourages your development? 7. At work, do your opinions seem to count?

Staying true to the family values

8. Does the purpose of your company make you feel your job is important?

45%

45% Agreeing on succession plans

Measure your employee engagement by having your teams answer 12 questions:

9. Are your fellow employees committed to doing quality work? 10. Do you have a good friend at work?

Making someone else proud

11. In the last 6 months, has someone at work talked to you about your progress?

Just ask yourself...

12. In the last year, have you had opportunities to learn and grow?

Why are you working in the family business?

[Taken from Gallop Q12]

Is it because you want to work there or to please someone else? What’s your dream and are you living the life you want? Could you apply for your job and be successful at an interview?

All rights reserved. ©Families in Business Limited

“Each relationship nurtures a strenth or a weakness within you”

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Pertemps - We understand family businesses Here at Pertemps Network Group, we are fully aware of the challenges that all family businesses face – that’s because family values are at the heart of everything we do. We started off life way back in the sixties as a one-off, family run business based within a single office in Birmingham. Today, we are the largest independently owned recruitment agency in the UK with a turnover in excess of £600m. The road to success has not been easy. In our 53 year history we have faced all kinds of challenges which have included market volatility, securing quality staff with the right skills. Throughout all of this our mantra has remained: “To exceed our customers’ expectations and to manage change.” However, we have persevered and a great deal of our success is down to the people we have recruited along the way. We recognise the importance of recruiting the right people to fit into our culture and adopt a robust selection process, encompassing competencybased skills, cultural fit and, above all, the right attitude. It is a tried-and-tested formula and one that has created a valued and proud workforce. This is why we have the highest staff retention rate in the recruitment industry. Succession planning is vital. We know a thing or two about that too! Longevity of staff can be your greatest asset; it can also be your biggest weakness. Our key has been the ability to strike a balance between excellent retention levels and growth opportunities for new employees. We can relate to the challenges you face in appointing the right candidates to fit within your family business; the best ways of retaining the best employees and continually improving your workforce through the supply of readily skilled or specialist individuals on an interim or contract basis. If your family business is looking for recruitment support, speak to a recruiter you can relate to – speak to Pertemps Network Group. Head Office: Meriden Hall, Main Road, Meriden, Warwickshire CV7 7PT

Pertemps is an equal opportunities employer

34598 Families in Business Advert.indd 1

All rights reserved. ©Families in Business Limited

E: info@pertemps.co.uk W: www.pertemps.co.uk T: 01676 525000

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stewardship... If everyone is moving forward together, then success takes care of itself. Henry Ford

Resources & Tools: FIB Solutions to help you:

Ensuring responsible management of the family business now and into the future should be of paramount importance.

- FIB Insight Peer Group Membership - FIB Navigation Consultancy - FIB Check-in Coaching - FIB Compass Diagnostic and Health Check

FIB Tools to refer to (available to FIB members): - 0023: Let’s Have A Plan - 0029: Family Business Structure - 0034: Polarity Map - 0041: Vehicle

- 0025: One Vision - 0031: Crossroads & Decisions - 0038: The Only - 0042: Wellbeing Dashboard

FIB Advisers to help you (full details page 01): - Else Solicitors - Mazars - Smith Cooper

- How you will build on the values and vision while protecting the family’s wishes and culture - How you will set the destination and course required - How you drive performance to achieve - How you will be aware of and adapt to the changing landscape - What systems, processes and actions will ensure success - How roles and responsbilities will be defined and managed, and protected in the business and family - How you will know if and when you are successful

- Higgs and Sons - O’Connors

All rights reserved. ©Families in Business Limited

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fib annual guide 2014-2015


stewardship... The Leadership Challenge

Succession to Future Proof

The first mistake often found in family businesses is the lack of understanding and boundaries between ‘ownership’ (those that have shares and voting rights), ‘management’ (those that have responsibilities for the day to day running of the business) and ‘family‘.

We prefer the term ‘future proofing’ your business as succession planning is often misunderstood. Succession plans should consider the ‘what if’ scenarios for tomorrow, e.g. if something awful happened to a key executive or family member, all the way through to considering how you will plan for the next 10, 20, 50 years from leadership to skills needs.

ownership

The "3-circle" Model Of Family Business Where Do You All Fit?

business

Relectance to plan beyond today remains a huge area of concern businesses and their leaders have a duty to employees, stakeholders, colleagues and their family to have at least basic plans to protect the business.

family

Working In The Business... Number of family members

3 1 3 9 7

59% 18%

50%

founding

22%

2nd gen

13% 6% 4%

19%

3rd gen

0%

4th gen 5th+ gen

10%

Gender

84%

The person “perceived” as having the main authority within the business: 16%

3

4

5

formal succession plan.

they need any form of succession planning

The world we live in continues to change at an incredible pace and with this fact comes challenges and opportunities.

16%

Family businesses are now seeing more blended families as a result of divorce, second marriages, adoptions and so on. We’re also seeing generation gaps as women enter the business (or found the business) and delay, or choose not to, having a family. This increases the importance of good future proofing, open communication and strategic planning for all eventualities.

6 7

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22% don’t believe

Society’s Changing Landscape

skills Biggest Challenges At Present growth family sales & marketing strategy business culture/moral access to finance

1 2

Only 5% have a

Generation of the most senior member of the family

- 17 -

A common dilemma is how to grow the business without losing the family values and culture.

fib annual guide 2014-2015


stewardship... How’s Your Governance?

Get your house in order

Governance in family businesses can be quite informal which is sometimes viewed as a strength as it allows quick decisions. As a long term strategy however, it leaves individuals and businesses exposed and often vulnerable.

Have all directors read your Articles of Association Know your Duties as a Director (attend a course perhaps) Create an agreed set of Roles and Responsibilities for the family Understand the difference between owner/manager Add ‘future proofing’ to your board agenda Begin discussions about creating a Family Charter Possibly consider a Family Board and a Management Board No matter how small the business, ensure good governance

Corporate governance broadly refers to the mechanisms, processes and relations by which corporations are controlled and directed

8% of family

27% of directors have

articles

never read their Articles and don’t know what’s in them.

businesses know they

have restrictive Articles of Association that limits shareholding or directorships (e.g must be in the bloodline of the founder)

57% of companies have Articles written over 25 years ago and have not reviewed them since.

Articles of Association: are the rules about running the company that ALL shareholders and ‘officers’ (directors or company secretary) have to agree to regardless of age or involvement

What makes up your Family Business Board of Directors? family only but open to having non-family

19%

Responsibility For The Day To Day Business The role of the Chairman, CEO/MD, directors, shareholders and family members must be discussed and understood. Very often the founder or CEO retires and becomes Chairman - it is a very different role and has its own set of requirements and yet many businesses struggle with these changes and understanding of each role. Is the right person leading your business? Do they understand the changing world? Legal duties and responsibilities remain no matter what the age. 33% of businesses have directors aged between 66 - 100.

mix of family & non-family director/s and non-executive/s

5% 21%

family & non family board with no NEDs

14% family board with family only “that suits us”

41%

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non family NEDs

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Age of the oldest legal director

35-50 51-65 66-70 71-80 81-85 86+

31% 36% 13% 11% 6% 3%

fib annual guide 2014-2015


stewardship... Future Developments On A Global Scale It’s always important for family business leaders to stand back and think strategically about their business; what could kill it and how they could diversify and seize new opportunities. The most resilient and long established family businesses all have an ability to adapt and stay aware of the changing world and society around them.

What Are You Doing To Stay Relevant?

More than a quarter of companies that form the UK’s manufacturing base believe they are lagging behind rivals because they are not spending enough on innovation - this matches our own findings which included many more industry sectors.

26%

R & D into annual budgets

build

28%

41%

know they need to develop their innovation and development but have no plans

state development, diversification & innovation are not applicable to their businesses.

All rights reserved. ©Families in Business Limited

Any company that spends money trying to improve a product or service through a technological advance, using qualified staff and appropriate project controls, and where there's doubt about the project's success, is likely to be eligible for R & D tax relief. 1. Thousands of eligible businesses could be claiming tax relief but aren’t so make sure you are.

The FIB survey highlighted the lack of investment into research and development (R&D) by family businesses leaving them vulnerable and at risk. A recent report into manufacturing within the UK found Britain's manufacturers are becoming increasingly worried they are not investing enough in research and development to keep up with their competitors at home and abroad.

Level of investment for research and development to ensure the business is future proofed...

What are you waiting for?

2. Your annual strategy must include a consideration of innovation and development - how you use it and how it will impact you

The only... Many businesses begin as market leaders and are very entrepreneurial, unfortunately family businesses can, at times, lose their way and fail to see the changes around them. Try answering this... We are the only... that... for... in the... who want/need... in an era of...

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e.g. manufacturers, suppliers e.g. can weld a certain type of widget e.g. the aging population e.g. Scotland, Europe, e.g. more time, feel good about themselves e.g. technology, living longer

fib annual guide 2014-2015


stakeholders...

“Fortunes are built during the down market and collected in the up market.” Jason Calacanis

Resources & Tools: FIB Solutions to help you: - FIB Insight Peer Group Membership - FIB Navigation Consultancy - FIB Check-in Coaching - FIB Compass Diagnostic and Health Check

FIB Tools to refer to (available to FIB members): - 0021: Personal Matrix - 0025: One Vision - 0032: Perceptions

- 0023: Let’s Have A Plan - 0029: Family Business Structure - 0039: What’s At Stake

FIB Advisers to help you (full details page 01): - Business Growth Fund - Higgs and Sons - O’Connors

All rights reserved. ©Families in Business Limited

- Else Solicitors - Mazars - Smith Cooper

The growth, survival and success of a family business are often influenced by issues relating to family relationships and family harmony. Not only do the actions of family members influence the success or failure of the family business (including in laws etc), but so does the behaviour of all stakeholders including non-family members. The success or failure of the family business may also have important emotional and financial ramifications for the different stakeholders involved in the business, whether that involvement is physical or emotional. Understanding what is at stake for all as well as who is a stakeholder (not just shareholder) is extremely useful for advisers and those in and around family businesses. Family-owned businesses are often not about ‘investment’, but even when they are they also have dynamics and emotions that complicate things.

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fib annual guide 2014-2015


stakeholders... So Who Are The Stakeholders?

Number of family shareholders

2 3 4 8+ 1 5 6 7

Stakeholder is the name given to shareholders very often but the term covers many more people than that. So who has a stake in the success or existence of your business? Your stakeholders will vary in terms of what matters to them and how much is at ‘stake’ but they may include: - employees plus their families - customers and clients - suppliers - your immediate dependants, partner, children etc - other family members - your shareholders

2%

We often hear family businesses say that they don’t need a Shareholders Agreement, that they all get on well and so can agree what will happen if and when needed. It’s incredible how many family businesses have nothing in place. You don’t write a Will thinking you’ll die today, it’s a form of protection as is a Shareholders Agreement (SA). The best time to put one together is when communication is flowing and everyone’s engaged and getting on well. Creating a SA is a great opportunity to unite, especially if you utilise a neutral facilitator. only 16% of family

Check list

businesses have

protected Shareholders Agreements in place

List ALL stakeholders for the business List all the stakeholders in your life

Most wait for a dispute or death before realising they should have thought about a Shareholders Agreement.

11% 10% 6% 5% 5%

We’re Not Going To Die Today

Family businesses and the families within them are often very caring and take full responsibility for all stakeholders but tensions can exist and build if the relationship, stakeholder‘s objectives and communication between them all is not open and understood. This becomes even more critical for family businesses as the “stakes” are higher - the rejection, loss of relationships, employing outsiders and risk, impact on the legacy of loved ones, loss of significant wealth as just a few examples.

How do you communicate and engage with them? Do you know how key they are to your business and how much your business is to them?

43% 19%

32% don’t believe they need one

Shareholders Agreement: is an arrangement among a company's shareholders describing how the company should be operated and the shareholders' rights and obligations. It also includes information on the regulation of the shareholders' relationship, the management of the company, ownership of shares and privileges and protection of shareholders

16%

All rights reserved. ©Families in Business Limited

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fib annual guide 2014-2015


stakeholders... Multiple Weddings And A Funeral

Letting Others In

A Shareholders Agreement conveys how you wish shares to be managed in various circumstances including issue resolution. They are a great opportunity to step back and look at the future direction of the business.

With most family businesses wishing to retain ownership within the family it can mean that it’s more challenging to attract and retain high quality talent at board level. Family businesses state that flexibility and control are two of the main benefits of being part of their business - and that they have no wish to sell or have non family shareholders.

Step back and ask some serious questions. “What happens if we don’t agree? There are only two of us and we own the shares 50/50 so how can we resolve a dispute? What if my brother passes away and his wife has his shares?”

Who else owns shares?

8%

Without an agreement to the contrary, shares may automatically transfer to the spouse of a shareholder upon their death. A shareholders agreement can provide for a right of first refusal for the remaining shareholder(s). All parties should also have up-to-date Wills that work alongside and mirror the shareholders agreement and articles of association of the company. Without a shareholders agreement in place, the question of “who gets my shares if I die or cannot work” may not be an easy one to answer. Another frequent issue is shareholder divorce, which is a particularly delicate subject for family businesses. With around 40% of marriages ending in divorce, it is likely that at least one of your shareholders’ relationships will end. A good Shareholder Agreement will stipulate if the ex-spouse of a shareholder is entitled to hold shares. If you do not have an agreement you could be left with a shareholder who does not have the best interests of the business at heart.

92%

non- family shareholders

family shareholders

Discuss what’s at stake Does ownership need to remain in the family? If yes, then why and does this include ‘in-laws’? What is the role of the shareholders? Do we have a healthy relationship with our shareholders? What is the emotional & commercial value of the business? How are shares to be passed? What is the dividend policy?

16%

All rights reserved. ©Families in Business Limited

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fib annual guide 2014-2015


assets and advisers...

“Beware of little expenses. A small leak will sink a great ship.” Benjamin Franklin

Resources & Tools:

Successful family companies usually seek steady longterm growth and performance to avoid risking the family’s wealth and control of the business. This approach tends to shield them from the temptation—which has recently brought many corporations to their knees.

FIB Solutions to help you: - FIB Insight Peer Group Membership - FIB Navigation Consultancy - FIB Compass Diagnostic and Health Check

FIB Tools to refer to (available to FIB members): - 0020: Pictures Say A Thousand Words - 0023: Let’s Have A Plan - 0033: Achieving Perfection

- 0021: Personal Matrix - 0031: Crossroads & Decisions - 0040: Life Line

FIB Advisers to help you (full details page 01): - Barnett Ravenscroft Wealth - Close Bros Asset Management - Higgs and Sons - Mazars - One Stop Business Finance - Smith Cooper

All rights reserved. ©Families in Business Limited

- Business Growth Fund - Else Solicitors - St James Place - O’Connors - Part Time Executives - Yorkshire Bank

A longer-term planning horizon and more moderate risk taking serve the interests of debt holders too, so family businesses tend to have not only lower levels of financial leverage but also a lower cost of debt than their corporate peers do. Having worked to build a successful business it’s vital to have wealth and asset protection, management and planning in place for individuals and families. With all decisions and actions, engagement of outstanding and appropriate advisers is essential.

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fib annual guide 2014-2015


assets and advisers... The Future’s Bright The growing optimism of family businesses is very welcome. Recent research from Oxford Economics shows 56% of family businesses expect to grow during 2014 – while 69% report that sales rose or were maintained during the second half of last year. A wider survey of family businesses across Europe suggests 92% are examining investment opportunities for the year ahead. There is every reason to expect family businesses to capitalise on those opportunities with great skill given how strongly these businesses perform over the long-term - just ask the shareholders of European companies still controlled by their founding families, such as Associated British Foods, L’Oreal and Roche - all of which have posted market-beating returns. Several studies suggest that family businesses’ ability to plan strategically for the long term, rather than having to satisfy the demands of investors more focused on short-term gains, is a major boost. Family controlled businesses often have an impressive record of low employee turnover, which in turn enhances productivity and corporate culture; and are inclined to take a long-term perspective. Conservative financial management is not unusual and they tend to be more cautious about taking on excessive debt. But a certain conservatism or cautiousness does not, and need not, amount to a lack of ambition. At the heart of many of these businesses lies an entrepreneurial spirit that was most probably the genesis of the organisation.

What do you think? What level of risk and growth is right for you? Are your advisers able to add value to you? Are you up to date with funding options, new opportunities and grants? Your advisers should be helping you with this.

All rights reserved. ©Families in Business Limited

All businesses need a certain level of resource to capitalise on growth opportunities – in particular, sufficient funding plus the right blend of management skill and experience. But some family businesses may struggle to find those resources. Equity financing may provide a solution.

What will you do? Spend time with your advisers to better understand how to work with them - not just when you have a project or specific requirements. Maintain your assets Have an up to date asset register

Vital Protection Beyond the core holdings, families need strong capabilities for managing their wealth,usually held in liquid assets, semiliquid ones (such as investments in hedge funds or private- equity funds), and stakes in other companies. By diversifying risk and providing a source of cash to the family in conjunction with liquidity events, successful wealth management helps preserve harmony. Good advisers will look at every aspect of your business, assets, life, needs and dreams. Of course putting appropriate protection in place is also important through prenuptual agreements, co-habitation agreements, shareholders agreements and so on. Always have an open mind to the ‘what if?’ question - no one ever knows what tomorrow may hold. Knowing your own purpose in life allows you the best chance of contentment and happiness. True wealth comes from ‘time’: how you use, who you share it with and what value and importance you give it.

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fib annual guide 2014-2015


assets and advisers... Getting The Most From Your Advisers

Looking After The Pennies

Family businesses tell us that they are most satisfied with their accountancy firm and least satisfied with their wealth planner/IFA. Why? Well we understand that there is a frustration at being sold products and that many advisers are unable to add true value or demonstrate understanding of the often complex and challenging issues of owner managed and family run businesses.

There often remains a reluctance to develop a more formal approach to financial management and strategic planning – the thought of bringing in ‘outsiders’ can be daunting, especially to a founder. One of the safest first steps to consider may be the provision a part time Finance Director.

Accountants only rated 3.82 out of 5. So how can we get advisers to provide a better level of assistance? All relationships are a two way street. Family business satisfaction rating for their current external advisers:

Typically businesses bring in a part time Finance Director for a set project and slowly, once trust and confidence is built, they become an intrinsic member of the team. Use of part time FD’s can vary from 2 days per week to several days per month. Who manages the finances?

accountant

45%

insurance solicitor bank marketing

Family member Most have no training or qualifications

23%

No Finance Director or manager function

23%

Non family Finance Director

No one person has responsibility

hr adviser coach wealth

Measuring TRUST

9%

rate each out of 10 - 10 being MOST

How credible are they in dealing with you and family businesses ? How reliable are they? Do they do what they say? How well do they genuinely understand you, the family and your business? How comfortably can they tackle more intimate/personal/emotional issues How much are they interested in themselves and just selling a quick fix? Total trustworthiness rating:

All rights reserved. ©Families in Business Limited

+ + + -..

Part time or outsourced service

Regarding tax issues, many family businesses “blur” the lines between business and family – often seeing the business bank account as an extension of their own and vice-versa. This can result in HMRC challenging the business nature of items which are included within the accounts and/or investigating the company/family. Such an investigation can lead to tax liabilities, penalties and interest.

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fib annual guide 2014-2015


Your family business Planning for a better future Clients value advice that helps them reach their goals. At Close Brothers, our financial planning service for families in business has been developed to help our clients identify, review and attain their goals. Planning for succession, extracting value to enable the current generation to retire in comfort and leaving a well-capitalised business for the future are areas we focus on with family businesses. Working with the family, and their other trusted advisers, our financial plans routinely look ahead for three generations to develop a strategy and the skills to enable a smooth succession. Our client-centred approach identifies the most important priorities for each family. Words like comfort, lifestyle, security, wealth, stability and retirement feature regularly in our conversations. So in our ongoing review meetings, we check that these key events are on track as a regular part of our clients’ satisfaction.

Succession planning and growth strategy are the top business challenges facing family businesses in 2014* We understand that financial services have fundamentally changed and we believe we have developed a long-term proposition for family businesses that address their needs and which adds value. Our service will naturally analyse risks, investments, liabilities, insurance and tax but importantly, it also focuses on working with other advisers, so that together we can all provide the best support for the family business. The value of an investment can go down as well as up and you may get back less than the amount you initially invested.

Family businesses are different from conventional businesses. A detailed understanding of your family’s culture and goals is essential so that we can work with you, in the way you want, to help you attain the lifestyle you want now and for the generations to come. *FIB Survey 2014

For further information please contact Richard Watkins on Tel: 0117 917 0715** or richard.watkins@closebrothers.com **Telephone calls made to any members of Close Brothers Asset Management may be recorded, and recordings may be used for training purposes to meet our regulatory requirements. Any data provided during calls will be used and held in accordance with data protection laws.

All rights reserved. ŠFamilies in Business Limited

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fib annual guide 2014-2015


Annual Guide 2014-2015

Our experience of yesterday creates the dreams of tomorrow and the opportunities of today.

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Families in Business Limited Call:

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For Family And Owner Managed Businesses

Fib 2014 annual guide  

Annual Guide 2014-2015 for Family and Owner Managed Businesses

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