If there was an uplifting business story that emerged from the coronavirus pandemic—and despite the often dire headlines, there were many—it was the relatively strong performance of family businesses in Canada. While they were dealt an immediate financial blow as the COVID-19 crisis took hold and social distancing restrictions impacted organizations across sectors, their resiliency and agility helped keep Canada’s economy afloat.
A recent KPMG survey of family-owned businesses globally highlights the degree to which family businesses in Canada outperformed relative to their international counterparts. For example, slightly more than half of Canadian respondents saw their revenue drop in the early stages of the COVID-19 crisis. That compared to 69 per cent for family-run companies globally. At the same time, 30 per cent of family-operated Canadian SMEs reported their revenue remaining stable, while 17 per cent said they posted revenue increases thanks to effective business adjustments.
Taking a broader view, 87 per cent of family businesses globally currently have a family member as CEO and 42 per cent were more likely than non-family-run firms to adapt their business model at the onset of the pandemic. In many cases, rapid digitization and the implementation of new technologies helped family-run SMEs around the world thrive just as some enterprise-sized organizations faced obstacles that slowed their ability to make strategic operational shifts. The survey found that immediately reducing business expenses, moving to a remote work arrangement and renegotiating vendor contracts were important tactics that owners of family businesses implemented to help shore up their balance sheets. So, too, was reducing compensation for family members involved in running the company.
KPMG describes the use of that latter tactic as one that “… both supported [firms] and upheld family values.” That’s a key observation.
In our extensive work with family-run organizations here at Bridgewell Financial, we’ve seen a consistent theme: Family businesses are typically built on values and driven by a desire to promote the financial wellness and success of everyone involved in its operation. That focus translates into a distinct competitive advantage. We’ve noted that leaders of family-run businesses tend to have a clear vision and a heightened level of accountability. After all, there’s nothing like staring across the dinner table at a loved one (who also happens to be a colleague or business partner) and having to account for that latest operational decision—especially if it’s one that could significantly impact your collective financial fortunes.
Quick decision-making and smart growth
The reasons don’t end there. As noted earlier, many family businesses were able to pivot in the early stages of the pandemic because they typically employ a simplified decision-making structure that allows for bold moves. Whereas larger groups of disconnected decision-makers can sometimes focus on compromise or implementing personal agendas, overlooking the ideal outcome for the organization. An owner-operator supported by a core management team—especially if they’re not beholden to outside shareholders—can avoid half measures and do what’s needed to achieve results.
At the same time, they can leverage multi-generational expertise to make high-impact changes, such as the implementation of new processes, systems and technology. As the KPMG report noted: “The next generation understands that digital adoption and ESG strategies are necessary to sustain business operations and achieve future business and family goals … Overall, the pandemic accelerated conversations within families on governance to enable faster decision-making on these types of issues …”
Family businesses also tend to take a more conservative approach to growth, while still finding ways to move the business forward and out-compete rival firms. Unlike a major corporation that might be driven by quarterly performance, family businesses are usually in it for the long haul. In our experience, the emphasis tends to be on growing companies and building client relationships and equity that produce multi-generational wealth.
A holistic approach to financial planning
In short, entrepreneurial families are often laser-focused on their mutual financial well-being, as well as creating a lasting business legacy that can be shared across generations. It doesn’t always work perfectly, of course, but as the KPMG study demonstrates, family businesses are generally guided by these principles.
That’s not to say that family businesses are inherently superior to major corporations. The latter generate tremendous employment opportunities and economic benefit. It’s simply that family-run organizations embrace different strategic objectives and operational tactics.
And because the financial fortunes of business owner-operators are so closely tied to the key performance metrics of the business itself, they also tend to take a more cautious approach to financial management. That means working to keep expenses down, maintaining a close eye on the balance sheet and carefully analyzing deals for their efficacy and long-term benefit before signing on the dotted line.
Doing so often prompts them to explore stable, growth-oriented personal investment opportunities— perhaps leveraging insurance products to their financial benefit—while carefully developing a tax-effective corporate structure and estate plan to mitigate their tax burden. Searching out new ways to grow their nest egg and ensure long-term financial stability for their family is almost always a key priority. Sometimes that wealth-building strategy will broaden to include philanthropy as a tool to add greater meaning to their success and nurture a tradition of charitable giving.
While the coronavirus pandemic has tested virtually every CEO, it’s reminded us that leaders who build and run businesses alongside family do so with a different purpose. Their unwavering values, coupled with a determination to achieve financial wellness for themselves and their loved ones, delivers a different (and very potent) edge that enterprise-sized firms simply can’t replicate.
The Bridgewell Team
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