Resilience is in DNA of family business but challenges are unique

The mission statement of the Family Business Network Ireland is appropriate for challenging times: By families, for families, across generations.

As the network organisation for experiential learning, mutual support and advocacy for Irish families in business, FBN exists to connect people who share an interest in and concern for the growth and sustainability of this key economic sector.

In its role as a voice for this community, and acting as representative of a wide range of Irish family businesses, FBN’s coalface position makes it witness to the formidable challenges currently confronting family concerns.

“These are certainly challenging times but family businesses know better than most that there will always be challenges,” says John McGrane, executive director, FBN Ireland.

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“Many family firms already have many stories of overcoming adversity and they always find a way to rise to the challenge, having already survived for generations to get to this point.”

Irish family businesses are inherently long-term focused, planning for generations, not just financial quarters.

“They are incredibly resilient, and can use their flexibility – or lack of bureaucracy – to their advantage, enabling them to make decisions quickly in challenging times,” says McGrane. “Undoubtedly, we believe there is a gap in the recognition of this in Government policy and we continue to campaign for family businesses to be given their due credit for their unique contribution to communities in every constituency across Ireland.”

The financial fallout from Covid-19 is still having an impact on the family sector, which has been exacerbated by the war in Ukraine.

“That is absolutely the case,” says McGrane. “The recent years of the pandemic and the Ukraine war have been unprecedented and have caused turmoil across not only the business community but society as a whole.”

McGrane says that the associated increases in the cost of doing business have led to huge pressures in the family-business sector – pressures that for some have been insurmountable.

“The Family Business Network welcomes the introduction of schemes such as the Temporary Business Energy Support Scheme (TBESS) by Government and we continue to liaise with policymakers on ensuring that these business-relief schemes are fit for purpose and that they are made accessible to all those that need to avail of them,” he says.

McGrane agrees that, given the close-knit nature of family concerns, they face challenges not experienced by other companies. “Of course, some family businesses face the additional stress of succession planning, which no other enterprise has to go through,” he says.

“Succession is more than making a plan – it is an emotional process and it can be a difficult thing to confront. Moreover, when succession does take place in a family business it is subject to taxation, unlike any other company which undergoes a change in management structure.

“As such, a well-planned succession, far in advance of any handover, can save a lot of stress for family businesses. Plus, it is clear that all family businesses take such personal pride in what they do that it more than offsets any stress.”

FBN Ireland was established by a number of Ireland’s leading business families. As the Irish chapter of a non-profit international network of business-owning families – Family Business Network International – it is tasked with promoting the success and sustainability of family business.

FBN International has in excess of 10,000 members from more than 3,700 family companies, organised in 29 national or regional associations around the world.

Budget ‘a missed opportunity’

Regarding Budget 2023, McGrane says that limiting EU supports to manufacturers and exporters severely penalises the other employers on which they depend in every community, such as retail, waste and other key local services.

“Ireland is too reliant on tax revenue from just a few foreign firms in just a few sectors and locations, and action needs to be taken if the Government wants to protect and develop our home-grown employers,” he says. “Budget 2023 is a missed opportunity to begin rebalancing the economy and put these firms, who account for four times the net national product of their FDI counterparts, at the heart of economic planning and we urgently need a new long-term strategy for local employers and jobs.”

A successful succession plan can offer an excellent chance to consider the company’s operations and direction and involve younger family members in decision making

—  Camilla Cullinane, KPMG

As to how Government can best support the family-business sector into the future, McGrane urges recognition of its unique position and nationwide contribution. He sees Irish family businesses as facing the same issues that most companies will confront in areas such as talent and managing costs.

“However, the issue of succession is one that is unique to family business and as such is an area where support is difficult to come by,” he adds. “This provides a distinct challenge for family-run businesses and that is where the Family Business Network aims to be a resource, connecting family businesses across Ireland with each other to provide a network of knowledge and mutual support.”

FBN Ireland has also continuously urged the Government to update the tax system to remove obstacles in family-business succession planning and transition. Ireland’s current rate of capital gains tax (CGT) is the third highest in the OECD and leaves Irish family-run businesses at a distinct disadvantage to their peers.

Succession and estate planning

Organising who will take over your business is one of the most significant decisions you will ever make, says Camilla Cullinane, tax partner, KPMG Dublin.

“That is why it makes sense to start thinking about this early, ensure a detailed plan is in place and never leave things to chance,” she says. “A successful succession plan protects your business and can be an opportunity to strengthen your business and put it on an even firmer footing for the future. It can offer an excellent chance to consider the company’s operations and direction and involve younger family members in decision making, so everyone is working towards shared goals.”

Balancing family and business interests is important when considering how to finance succession planning, Cullinane advises.

“While the long-term future of your family’s wealth and business are closely entwined, there may also be conflicting interests, particularly if some family members don’t work in the company. Therefore, it’s essential to define who is family, who will benefit and what provisions are made for family members who are not active in the business.”

Many families find it helpful to have a family governance plan that defines how the family and the business interact. This plan can address how the family wants to operate the business and who is involved regarding ownership and management.

“Tax is critical in succession planning, so you need to know the tax landscape when drawing up your succession plan,” says Cullinane. “This includes being aware of the potential impact of capital gains tax, capital acquisitions tax (CAT) and any relevant tax reliefs, such as retirement relief from CGT, which business owners, depending on their age, can avail of to varying degrees when transferring a business to either a child or someone outside of the family. Or business relief, which reduces the taxable value of business property by 90 per cent for CAT purposes.

“Expert advice is invaluable as many conditions must be met to avail of these reliefs and manage these liabilities. If passing on your business will incur a tax liability, you’ll also need to consider ahead of time how this tax liability will be funded. For example, a lot of wealth may be tied up within your business, making it difficult for those liable to access the funds they need to pay the tax liabilities. You’ll also need to be crystal clear on any tax implications relating to assets held in other jurisdictions. Make sure you get local tax advice to avoid any shock bills down the road.”