Our Growth DNA Model for Family Business

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Our growth DNA of family business model

We know that each family business is unique, yet successful family businesses have much in common; understanding these success factors and taking advantage our knowledge underpins what we call the “Growth DNA of family business” model.

Our bespoke model services support both the personal and company performance agenda of family businesses leaders, and aim to help you succeed for generations.

We know that an aligned family and business strategy secures both your family’s and your company’s values on a long term basis  and it also forms the foundation for the planning of ownership and management succession.

 

Next Generation Planning

What decisions need to be made when you hand over a healthy company that is equipped for the future? How should the course be set so that the next generation can continue running the company and maintaining its competitiveness in the market? Do you have a family member who would be a suitable successor, or does one of your senior managers have the potential to assume control?

Generational change in family businesses is a highly complex process. It often constitutes a real balancing act for everyone involved – family, company and owner. In addition to practical objectives and technical aspects, the issues to resolve always have an emotional component. Alongside fiscal, legal and financial questions, the very personal aims and values of the entrepreneur and family members are also of prime concern.

Succession planning

Often, family interests are not the same as company interests. While founders may want the company to keep on growing, members of the next generation may be keen to make their own way in the world, or simply may not be interested in taking on the responsibility of running the family business.

Despite succession planning being acknowledged as a high-priority issue, many family businesses admit that they have no detailed hand-over plan in place to maintain the business, find the right person to take the lead, and deal with the complex tax and legal environment. The communication and introduction of the successor is also of critical importance in maintaining a trusted relationship with important stakeholders, such as employees, customers, vendors and banks. For the owner of the company, succession planning is a once-in-a-lifetime process. In order to organize a successful generational change in your company and secure your life’s work, you must establish a suitable plan at an early stage.

Leaders need to consider a number of options. These include searching within the family circle and among the company’s existing managers – and, possibly, considering external candidates.

Emotional transitions

Succession planning is always an emotional subject. It depends on personal relationships and abilities, which may not go hand in hand. Your choice of successor might be also controversial.

It is important to manage expectations and discuss matters on a professional level. External advice can remove personal interest and help to ensure that decisions are based on what benefits the company and the family.

To avoid any complications or ascendency arguments at an already stressful time, it is vital to ensure that a formal hand over and succession plan is in place, or at least under development. Such plans should include agreed contingency management arrangements, in case of an event such as death or incapacity. This ensures fairness and transparency for all family members.

Future management governance

The most successful family businesses have strong governance procedures and written agreements. These documents align the family interests with the business strategy. They will codify many important internal processes, such as the definition of voting processes and the appointment and power of senior executives. They may place restrictions on the way a family member can work in the business and set out how their performance should be evaluated.

In addition, stringent governance on how shares can be sold, both inside and outside the family, needs to be established. This will ensure that it will be possible to raise fresh capital for the business or release cash for family members.

These and other rules governing the roles and responsibilities within a family business often take the form of a family charter.

Inheritance and estate transfer tax

The variety of rules governing inheritance, wealth and gift taxes within different country jurisdictions can be complicated. But they will help determine the amount of wealth you will be able to pass on to the next generation.

By their second generation, family businesses usually have both domestic and international operations – and members of the family can have assets all over the world. Perhaps the most important thing that family firms can do is to start planning early to find the right solution. They should even look decades ahead. EY will be able to advise you on how to transfer your estate in the most tax-efficient manner.

In all countries, tax is liable on the basis of the acquired assets of individuals. Tax rates depend on the country in which the domiciled assets are inherited by or gifted to non-domiciled individuals. Scalable rates apply, depending on the tax class of the acquirer and the value of the acquisition. Exemptions range dramatically, and some countries will apply a flat tax rate on death. It can sometimes be advisable to move to another country to take advantage of beneficial tax regulations. Your tax advisor can help you understand international issues and opportunities.

Transferring entrepreneurship

Family businesses need an entrepreneurial spirit that succeeds for generations. They need to harness the values and innovative mindset that established the business, to create future opportunities. Many entrepreneurs will find it difficult to hand over control – especially if they don’t see the same kind of driving passion in their successors, or if they are simply too busy with the day-to-day running of the business to pass on their skills and knowledge.

However, this is a short-term view. Sharing knowledge with younger family members and training them in the necessary skills may enable the company to stay in family hands. Shadowing a “mentor” and discovering what they do, often engages the young heirs to take an interest in a wider variety of jobs within the business.

Many business colleges run social and educational programs to help family businesses prepare young adults for the working world. In addition, EY’s exclusive Junior Academy program helps them to explore their potential and introduces them to the challenges of running a family business. The program enables them to meet their peers from around the world and discover for themselves the excitement of becoming an entrepreneur.

Conflict

How a company is managed can be affected by conflict between family members over the way money and power is distributed, claims of favoritism or disagreements over succession.

Often a good way to make major decisions is to set up a “roundtable,” or have a family board, where business is dealt with on a regular basis by the family (and non-family executives, where applicable). In many cases, a mature family business with many family stakeholders would be wise to develop an integrated family strategy that covers roles, responsibilities and the decision-making processes.

When there is conflict, the introduction of an external third party without emotional involvement or bias can be the answer. A trusted advisor, such as EY, can introduce different approaches and act as a professional mediator in both personal and business matters.

How EY can help you with your succession planning

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We will work closely with your family, sensitively discussing exactly what you want to happen in the future. Together, we can:

1. Determine your requirements

2. Assess your current business strategy and identify which route to take in tax and legal issues

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, EY has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. When looking at international issues, our offices in over 140 countries can provide you with the local support you need.

We confront the growing complexity of succession planning and the task of protecting your family wealth from a variety of angles. You can choose from the following bespoke services:

  • Asset and tax analysis, and implementation of supplementary testamentary arrangements
  • Succession planning in line with legal and fiscal requirements, with consideration for tax on earnings and inheritance tax
  • Drafting wills, inheritance contracts, marriage contracts and inter-vivos gifts
  • Help with the execution of wills and guidance on inheritance disputes
  • Family office advice
  • Creation and management of foundations and trusts
  • Neutral mediation in the case of disputes
  • Company valuations and sales
  • Support to help develop a tailored family strategy and family charter

EY’s tailored services

EY offers a wide range of professional business services specifically aimed at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help you meet family challenges and make plans to help you succeed for generations. For more information on the EY Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page

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Effective tax management

The ever-changing tax landscape has a significant impact on strategic planning for family businesses. Whether the focus is on investments, financing and liquidity, or plans for growth or expansion, tax law factors heavily in the decision-making process.

With tax authorities across the globe seeking to maximize revenues, it is more important than ever to ensure that your executives understand the tax implications of all the business decisions they make – as well as the structure, processes and policies related to tax controversy and risk management.

Personal tax

The tax and legal issues facing you and your family are extremely complex. Personal taxation has never been so multifaceted, and failing to consider all the elements could prove costly to your family and your business.

Wealthy individuals have increasingly international lifestyles, with various business interests, and homes and assets located all over the world. Tax liability can arise in a number of different countries on the basis of residence, location of assets, nationality or domicile. Failing to consider the international nature of your affairs can lead to erosion of your wealth and even affect the ultimate disposition of your estate. A holistic approach to your tax planning will help mitigate problems, both now and for future generations (for inheritance tax: see our information on “Next Generation Planning”).

Ernst & Young’s team of lawyers, accountants and chartered tax advisors can work with you to help reduce your tax burden. Our approach can be tailored to your lifestyle and family circumstances. Our professionals evaluate all the relevant commercial, legal and financial factors and constraints, in light of your unique circumstances, giving you peace of mind and letting you concentrate on improving your business.

Corporate tax

Proper structuring of your tax function can free up working capital, allowing you to take advantage of market opportunities and maximize your asset portfolio. Whether you are restructuring the business, making an acquisition, refinancing or simply focusing on mitigating risk, you will need to identify the most efficient tax structures.

Tax departments are increasingly involved in the strategic planning and decisions traditionally reserved for the boardroom. Having your tax function closely aligned with executives on the board will ensure that your business is taking full advantage of all available tax credits and subsidies.

It is important to anticipate global tax and legal changes and their implications for your business. This will ensure that you are well positioned to take advantage of available fiscal stimulus and climate change program tax credits, as well as other tax incentives, including corporate rate reductions, relief for losses and “green” research and development initiatives.

Ernst & Young will work with your company executives to identify appropriate tax planning opportunities, point out potential areas of exposure and recommend ways to improve the returns on investment portfolios. Our tax professionals draw on their diverse perspectives and skills to give you seamless service through all the challenges of planning, financial accounting, tax compliance and maintaining effective relationships with the tax authorities.

Tax controversy

Tax controversy can arise in many circumstances, but especially in estate transfer and succession. This can stem from complex tax laws, or from issues with a range of answers, such as valuation or allocation methods. Tax controversy costs can escalate rapidly, not only because of costly litigation and representation, but also because of penalties.

Incorporating international tax controversy and risk management into your strategic planning can pay dividends, as well as deliver greater certainty and flexibility. You may be able to release cash, reduce your tax compliance costs and prevent your staff from spending valuable time managing complex tax controversies.

International issues and transfer pricing

In addition to the structure, processes and policies related to tax controversy and risk management, your board should establish a clear strategy for cross-border tax controversy and risk management, which is in line with your performance improvement and expansion plans. It is advisable to conduct tax compliance and risk assessments for your current international tax situation, and proactively seek information on potential tax policy changes and international disclosure agreements that may affect your current and future international footprint.

The following are just a few of the considerations that can significantly affect your bottom line:

• Ensuring subsidiary losses are being utilized in the most tax-effective manner

• Exploring opportunities to reduce indirect taxes, such as customs and duties or variable annuity

• Reviewing foreign exchange exposure and hedging issues

• Exploring cash repatriation strategies or tax supply chain modifications

Ernst & Young’s transfer pricing professionals can help you understand the tax implications of your business transactions, whether acquisitions, disposals, refinancing, internal restructuring, company integrations or initial public offerings. This will help ensure that your transfer pricing agreements and documentation are consistent and in line with your international operations and investments.

Family trust management

As family businesses grow and the number of dependents increases, the tax implications of estate transfer can be hard to navigate. By proactively managing your tax planning and giving careful consideration to succession-planning options, you can reduce your tax burdens, exposure to tax controversy and costly litigation.

Good trust management will enable the family to spread its risks and manage other investments as efficiently as possible. The tax benefits offered by trusts can be attractive, but strict rules need to be followed to ensure that the transactions are not subject to inheritance or gift tax.

A trust can also help to ensure that all the family members are treated fairly financially, regardless of the dynamics of the family business.

As an independent tax advisor, we can help you to establish and manage your family trust, helping you identify the most tax-effective options for your family’s wealth.

How Ernst & Young can help you manage your tax effectively

Our extensive experience with family and entrepreneurial businesses enables us to develop and implement approaches for effective tax management. Together, we can:

1. Determine your requirements

2. Survey the current situation, including tax functions and legal policies

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices.

Our International Tax Group is the largest in the world, with offices in over 140 countries. It provides you with local support and helps to ensure an efficient review of your tax provisions wherever you do business.

Our customized tax services include:

  • Business tax accounting, compliance and advisory
  • Personal tax and other wealth tax management services
  • Advice on succession planning in line with legal and fiscal requirements, with consideration for tax on earnings and inheritance tax
  • Advice on drafting wills, inheritance contracts, marriage contracts and inter-vivos gifts
  • Advice on the execution of wills and guidance on inheritance disputes
  • Advising family offices on tax issues related to wealth management
  • Tax due diligence on mergers and acquisitions
  • Advice on legal issues, such as stock exchange legislation, the law relating to takeovers and employment law
  • Help in tax optimization of investment decisions, nationally and internationally
  • Help with international tax law and legislation compliance

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services aimed specifically at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to explore ways to reduce your tax burden and increase tax benefits. For more information on the Ernst & Young Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page.

Future management structure

No one can see into the future. But sometimes, you need to take steps to ensure that your business is able to evolve and strengthen; especially if your company is growing quickly and encountering complexity.

What will happen to the business after you are no longer around? Who will take over and how smooth will the handover be? Whether it’s your family or your management who takes control, the company structure will need to change fundamentally. So how can you ensure that the business will continue to function successfully?

Contingency management

Would your business be ready for a sudden change of leadership caused by illness or death?

Many family companies revolve tightly around the owner. Such an arrangement brings complications when a succession is imminent. Choosing a successor from within your family is not always possible. Your heirs could lack the desire and willingness to assume the entrepreneurial risk, or they may not have the necessary qualifications and experience to manage the company.

In an effective continuity plan, the family business owner appoints a team – usually from within the business, but often with the addition of an external advisor – that has the capabilities and desire to take over the mantle of running the business, if necessary. The team members must be clear about the roles they need to play.

Important succession decisions should be legally documented and disseminated long before they need to be implemented. Succession takes place at an emotive time, even when disputes over power or equity shares are absent. But careful planning can ensure a smooth transition. If the person leaving is the driving force behind the business’ success, it may be a good time to consider selling the company, or arranging for a management buyout, alliance or merger with a similar company.

Another feature of good contingency management is ensuring that the business can continue after a man-made or natural disaster, such as terrorism or an earthquake. Many companies would simply cease to exist if they lost their headquarters, their key company information or their experienced people. Renewal of infrastructure is fairly simple to arrange. But could you replicate generations of knowledge and customer information? Sensible precautions include seeking informed advice about recovery systems, and ensuring that knowledge and data is recorded and can be shared.

Family charters

A family charter is extremely useful if a number of extended family members have an interest in running the business or if there is a family trust. A charter is even more important if there are non-family members involved in running the business.

The charter is an official document that states the agreed aims of the business. It will identify family roles and relationships, set out policies that define the family’s involvement in the business, establish which people will have a say in which business decisions, set out who is responsible for which activities, and codify how appraisals will be conducted. It will also tackle the way the business supports training to develop family business skills, and outline procedures for resolving family disputes.

In the charter, it is vital to anticipate the short- and long-term future of the business.

Non-family executive appointments

Making the transition from family to non-family senior executives is never going to be easy. However, it’s important to keep an open mind and try to decide who really is the best person for the job.

A series of appointment opportunities can help to drive top-line growth. These include:

  • Identifying key people within your company and ensuring their retention by making them a shareholder
  • Hiring new people with complementary skills that enable the development of products or services, or fill gaps in your current capabilities
  • Persuading people with great customer relationships to join your team and bring their contacts with them

You may wish to consider separating family ownership and management completely or partially. Another option is inviting non-family executives and non-executives onto the board to fill positions traditionally held by family members. Clear exit plans for founders and early investors also need to be developed and executed, without affecting the strategic direction of the company.

Organizational design

Organization design is the reshaping of the structure of the company and the roles of its management and employees. To be effective, this structure should be aligned with the overall strategy of the business and aim to improve business effectiveness and development.

The planning should take into consideration not only the key skills of your people, but also leadership ability, behavior patterns and team effectiveness. The organization plan should give a clear delineation of management roles, with the escalation route throughout the company from “shop floor” to executive level immediately obvious. Once the new design has been agreed by the board, everyone in the company should be made aware of the changes via clear communications explaining why they have been made.

It can be difficult for some family businesses to make fundamental organizational changes without upsetting family members. In this situation, consider using an independent external advisor who can take a holistic view of the company’s strengths and weaknesses.

Governance

As a family business, you can take advantage of your unique governance structure to respond quicker to market opportunities and beat the competition. If your board decides to partner with another company, you can do so without having to consult external shareholders. However, this doesn’t mean that you should take too many risks.

Your board will be responsible for enhancing governance and transparency, complying with regulations and understanding the impact of transactions and structural changes on staff and customers.

Mergers, collaborations and acquisitions

Identifying acquisition opportunities and forming partnerships is critical for companies that wish to grow sustainably and become a market leader. Exceptional family businesses will be able to identify win-win situations and utilize their business networks to unlock the doors to value-adding partnerships. Such moves must be aligned to business strategy, focused on customer satisfaction and enjoy the active support of investors.

Making the right strategic acquisitions or divestments will maximize your long-term value and returns. You should also evaluate the benefits of licensing, franchising and joint venture opportunities.

Collaborating with complementary companies can drive innovation and broaden knowledge – keeping both companies ahead of the competition. It might also be beneficial to merge parts of the organizations to create an entity that will retain customer loyalty and build a successful brand.

To guard against expensive mistakes, companies should conduct detailed financial and commercial due diligence, risk evaluation and post-merger integration of systems, people and cultures. Keeping employees informed about major changes and reassuring them about potential overlaps will help retain their commitment.

How Ernst & Young can help you to prepare your future management structure

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We will work closely with your family and management team to determine how we can help you prepare your business for the future. Together, we can:

1. Determine your requirements

2. Assess your current business strategy and identify opportunities for improvement

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. When looking at international issues, our offices in over 140 countries can provide you with the local support you need.

As an independent advisor, Ernst & Young can give you detailed advice about the ways you can influence and regulate your future management structure. You can choose from the following bespoke services:

  • Strategic and organizational advisory
  • Company and portfolio value assessment
  • Mergers and acquisition project management
  • Legal due diligence and guidance
  • Drafting and negotiating contracts and family charters
  • Organizational design processes

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services specifically aimed at the unique requirements of family businesses. We know that one size does not fit all, so our services are personalized to your family.

We welcome the opportunity to help you prepare your business for the future and create a management structure that will help you to succeed for generations. For more information on the Ernst & Young Family Business Center of Excellence, and for details on how to contact your local family business team, please visit Our Global Network page.

Managing capital

Family businesses are faced with increasingly complex challenges as they seek to manage their capital.

Traditionally, family businesses have been known for their careful management of cash and their ability to fund growth plans without debt or equity fund-raising. But, as competition for growth becomes more intense, how can family businesses maintain control while ensuring that they have capital at their disposal, if they wish to expand their business through acquisition?

Prioritizing your capital management

Many family businesses are realizing that a strong capital agenda needs to be at the heart of all strategic boardroom and management decisions. Your capital agenda should be aligned with your overall corporate goals. It will impact upon key business drivers such as growth, finance and operations. While strategies and approaches will vary from company to company, one point is compellingly clear: by relying on traditional sources of capital, you may be providing your competitors with an advantage.

To address our clients’ capital agenda needs, Ernst & Young has developed insights into what we see as the four key dimensions of the capital agenda:

Raising capital: assessing future funding requirements and sources

Investing capital: strengthening investment appraisal and doing better deals

Optimizing capital: driving cash and working capital and managing your assets

Preserving capital: reshaping your operational and capital base

These four dimensions allow for a strategic discussion of the options available to you and the family business. This will help you to make informed strategic capital decisions, both in the short and longer term, that will sustain the healthy growth and performance of your business.

Preserving capital

A family business’s ability to access liquidity, manage and release cash and control costs, is essential to preserving capital. Sound cash flow management and forecasting practices are critical to the long-term survival of the business.

Working capital management

For family businesses, when the majority of funds may be tied up in the physical business, optimizing the use of available cash can be a challenge.

Attention should be given to the key drivers of efficient capital allocation: injecting greater discipline into operational efficiency and focusing on identifying opportunities for releasing excess cash.

Optimizing capital

Greater rigor can help identify instances of inefficient capital deployment and help assess alternatives.

Portfolio optimization

Benefits can be gained from reviewing and optimizing your family’s and the family business’s investment portfolio. For example, do all of your business subsidiaries bring in the required returns? A series of acquisitions can also introduce a complex legal and governance structure. But how can you organize the business to improve working capital, releasing cash and optimizing tax and corporate structures?

Portfolio reviews can be useful to determine the right mix of developed and rapid-growth markets assets, as well as between mature products and new product development. Overall, the goal is to inform buy, hold or sell decisions, as well as to improve the timing of corporate transactions.

Raising capital

Access to capital for funding growth is a key concern for family businesses. For many, it will be their number one priority. You may already be looking ahead, and considering new investments, and may need to negotiate and secure funding to support your business goals.

The financial crisis and the reform of business taxation bring greater demands on corporate finances and increase the importance of a sustainable capital structure. Lenders are imposing more stringent conditions on loans, with greater transparency required of businesses. This makes it increasingly important to optimize your internal capital resources, including your existing assets and cash flows. A well-considered business plan, with strong financial analysis and clear exit strategies for the investors, is essential.

It is wise to evaluate and explore innovative, alternative and diverse sources of funding, such as bond issues, sovereign wealth funds, private equity (PE), asset-backed lending, initial public offering (IPO), debt factoring and disposals.

IPO readiness

An IPO is the first sale of a company’s shares to the general public. It can accelerate the growth needed to achieve market leadership. A successful listing can unlock access to financing to complete a strategic acquisition; create new market expansion opportunities; provide an exit opportunity for senior family members retiring, or other investors, and improve perceptions of your business and brand with customers, suppliers and employees.

The IPO process is complex. The requirement for planning and specialist expertise is always very high, especially when personal and family objectives must also be considered. An IPO should be a structured and managed transformation of the capital, people, processes and culture of an organization. This will involve numerous leadership challenges, and senior family business executives will need to strike the right balance between executing the IPO transaction and maintaining day-to-day operations of the company.

Private equity

Depending on the objectives of existing stakeholders and management, and the attributes of the business, a sale to a financial buyer, usually a PE investment house, is an alternative to an IPO. For instance, a PE investor can provide an alternative for companies that may not be ready to access the public capital markets.

The PE investor will decide whether the investment meets its financial criteria in terms of internal rate of return and other measures of asset quality. The investor usually needs to feel that it can add value to your business, in order to increase the company’s performance or market position in preparation for an IPO to achieve its exit return aims.

Investing capital

Identifying the right investments, effective due diligence, integration and ensuring risk management plans are in place are all essential to successful investing. In our experience, family businesses shouldn’t wait until an investment prospect comes along to develop these processes. Investment time frames, particularly for distressed assets, are generally accelerated. Families with investment capital need to be prepared. This means screening for investment opportunities, as well as clearly allocated decision- making authority.

Mergers and acquisitions

Acquisitions and alliances are often the quickest way to grow your business, to add extra skills and to enable you to take advantage of a gap in the market. Increasingly, acquisition or merger strategies are being pitched to investors based on expected synergies and companies are recognizing the importance of more effective integration within their acquisition strategies.

Ernst & Young professionals combine an extensive global network with local industry insights to help you identify the right transaction for your organization, linking transaction strategy with business strategy. We can help provide transaction advice and focused due diligence to reduce risk, and capital-raising advice, so that you can make informed decisions that help to drive your company’s value.

How Ernst & Young can help you manage your capital

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We will work closely with the family and your financial team to determine how we can help you manage your capital, following an agreed plan. Together, we can:

1. Determine your requirements

2. Assess your business strategy and identify the most advantageous financial route forward

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

Advising on cost- and tax-efficient structures and strategies to maintain or establish your financial independence and entrepreneurial freedom is an integral part of the Ernst & Young service. We help you make better and more informed decisions about how you manage capital and transactions in a changing world. We work with you to evaluate opportunities, make transactions more efficient and help you to achieve your strategic goals.

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. If you have international interests, our offices in over 140 countries can provide you with the local support you need.

Our professionals bring together a unique combination of skills, insight and experience to deliver tailored advice, attuned to your needs, helping you drive competitive advantage and increased shareholder returns. As a neutral advisor with no interest in selling any specific capital products, Ernst & Young can also provide introductions to investment bankers, lawyers and other professional resources.

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services aimed specifically at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to advise you on managing your capital in ways that help you to succeed for generations. For more information on the Ernst & Young Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page.

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Sustaining growth and profitability

Long-term objectives

The long-term perspective of family businesses enables them to invest during difficult times and allows them to focus on the future health of the company, rather than on short-term survival. Strong central governance provides continuity and the entrepreneurial vigor to look for opportunities ahead. Lasting success will depend on seeing the risks, as well as the opportunities, and having a sustainable strategy for competing for a share in the world’s markets.

When your business grows to a certain size, you may need to enhance systems and processes. You may need to attract managers with strong sector knowledge and professional capabilities. You may need to drive change in the shape of international expansion, and you may need to keep an eye on costs to maintain profits and margins.

Optimize your market reach

New customer trends affect established routes to market and require new ways of thinking. To extend your market reach, you must optimize your potential in both current and new markets. Broadening your product or service mix can exploit opportunities, boost returns and mitigate risk. This may involve pioneering innovative entry strategies; leveraging your cash flow; bringing forward R&D investment; exploring new markets and exploiting existing assets, such as intellectual property, patents and licenses.

Fulfilling customer needs efficiently

For any business to grow, it is essential to put your customers first. Understanding who they are, what they want and why they buy from you, rather than your competitors, is the key to long-term growth.

As a family business, you have the ability to exploit your family “face” to build up relationships with customers and distribution channels. You can use your dominant local position to gain a deeper understanding of customer needs and apply this insight to your innovation and R&D processes. You can also use local relationships to enhance cross-selling opportunities.

To grow your business, your focus should be on increasing your offerings to your most important customers, so you hold your position against international competition. To expand globally, you will need to become the “supplier of choice” for your key customers across borders. But this shouldn’t be at the expense of margins and profit. Cost transparency, procurement and vendor management, back-office processes and resources should all be reviewed regularly to ensure that they are operating efficiently.

How Ernst & Young can help you to sustain growth and profitability

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. Following an agreed plan, we can suggest tried and tested ways to improve your operational activities and performance, helping you sustain growth and profitability. Together, we can:

1. Determine your requirements

2. Assess your current business strategy and identify opportunities for improvement and growth

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. If you are considering international expansion or relocation, our offices in over 140 countries can provide you with the local support you need.

We look at how your business can grow and how its profitability can be sustained from a variety of angles. Our bespoke services include:

  • Improving procurement and providing advice on the efficiency of your supply chains
  • Back-office integration planning
  • Cost-reduction strategies
  • Supply chain efficiency reviews
  • IT systems review and ERP software vendor reviews
  • Market entry assessment and due diligence
  • Transaction advisory and post-transaction integration
  • Identification and evaluation of fiscal, legal, organizational and logistical opportunities and risks arising from decisions across locations
  • Offshoring evaluation and process design

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services aimed specifically at the unique requirements of family businesses.

We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help your business grow, so that you succeed for generations. For more information on the

Ernst & Young Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page.

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Managing and retaining talent

A company is only as good as its employees. This maxim resonates even more in our globalized world. Increased cost consciousness, market volatility, international assignments, legal requirements, tax complexities and the necessity to retain top performers present a whole host of challenges to family businesses.

To keep everyone happy, you have to maintain symmetry between your company’s interests and your employees’ expectations. The balancing act between efficient cost management and a high level of employee motivation is a challenge. You need to consider a suitable compensation mix, but also the administration costs and tax issues for both the company and your employees.

Bringing outsiders into the family circle

Although it is often seen as ideal to keep the management of your business within the family, a company sometimes requires competent and experienced managers drawn from the wider business community. Such individuals bring new skills, insight and the ability to drive positive change.

Increasing the diversity of your management background may strengthen your ability to cope with a wide range of situations. The formidable combination of your family with its historical knowledge of the business, long-term contacts and customer loyalty, mixed with the unbiased fresh thinking of a proven industry expert, can be a powerful basis for growth.

Attracting and retaining non-family talent

You may wish to consider separating family ownership and management and invite non-family executives and non-executives onto the board. This could mean re-evaluating your business model and operational structure, and hiring people from outside the family to fill skills gaps.

However, there is a widespread belief that top jobs in family businesses should be reserved for family members – regardless of skills or qualifications. In businesses that think like this, there are limited opportunities for “outsiders” to reach senior positions or to influence the direction of the business. This belief is mostly unfounded, but it does mean that family businesses may suffer from difficulties in attracting and retaining non-family senior management.

Top performers may be attracted by the longer-term aim of helping to build a lasting institution and the opportunity to contribute to the decision-making process. For many, stability and empowerment is more motivating than financial gain.

Motivating through incentives

To maintain success, you must identify and reward rising stars and top performers – and keep them in the company.

Many family business employees are enticed less by annual compensation and bonuses than employees in non-family businesses. A frequent challenge, therefore, is to devise reward structures that properly motivate managers and executives outside the family. To do this successfully, you should establish competitive benefit plans and incentives tied to key performance benchmarks.

With no shareholders to restrict actions, family businesses are in an ideal position to motivate their employees by offering a mix of financial, physical and emotional incentives. Sharing the profits of the company, both formally and informally, creates long-lasting relationships.

Alternative tax-efficient incentives include shadow stock options; performance management systems (target agreement systems, performance reviews or job evaluations); annual bonus systems linked to key performance indicators and deferred compensation. As you grow, you may need to revisit your incentive structure and ensure that you retain key staff by letting them share in your success.

Managing managers

Our advice on personnel issues is designed to help ensure that you help your people to fulfill their potential.

Senior managers may be accountable for building client relationships and developing the business, so they must be given the flexibility to be able to do this effectively. It’s important for your managers to feel free to innovative and to take responsibility for their actions.

It is important that you hire the right people with the right skills. Each manager’s role needs to be defined precisely, so they fully understand their responsibilities and your expectations.

Building your employee brand

The family business’s external brand can be a significant draw for potential employees. Ultimately, your “employee brand” depends on the reputation your company builds for being fair and giving employees a great compensation package.

To attract the best talent, create innovative recruitment campaigns and compensation packages. And to keep employees happy, it is important to develop or access comprehensive and flexible human resources (HR) processes. As you grow, you may be able to build a global HR function based on accumulated leading practice from all your activities and link your human capital strategy to your business objectives and vision.

Mobilizing your workforce

As markets globalize, the number of employees on time-limited international assignments is growing. So you need to keep reviewing your global mobility strategies.

For many years, Ernst & Young has worked with companies that either send their employees on international assignments or have expatriates on their staff. In these cases, the employee’s tax situation requires international know-how. We advise employees on the tax and social security consequences that arise in home and host countries. If appropriate, or legally required, we will prepare the necessary documentation to help ensure that employees will continue to be covered by the social security system in their home country. In cases of dual residence, professional activities in several countries, or income from various foreign sources, we will weigh up alternatives and optimize advantages.

How Ernst & Young can help you attract, manage and motivate your talent

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We have a tried and tested way of approaching your personnel challenges. We can work with you to:

1. Determine your requirements

2. Assess your current business strategy and HR policies

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. When looking at international issues, our offices in over 140 countries can provide you with the local support you need.

We confront the growing complexity of attracting and retaining personnel from a variety of angles. For example, we:

  • Evaluate personnel costs and tax-efficient benefits, from company cars to choosing the right pension scheme
  • Promote flexibility, by developing compensation models based on performance and outsourcing non-core areas to enable concentration of effort on key projects
  • Create incentives based on value-oriented compensation and employee participation models
  • Shape expansion and global mobility programs
  • Ensure compliance with tax and social insurance requirements, such as checking the clauses of employment contracts and adhering to international regulations

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services specifically aimed at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help you realize the potential of your people and create a strong employer brand that will help to ensure that you succeed for generations. For more information on the Ernst & Young Family Business Center of Excellence, and for details on how to contact your local Family Business team, please visit Our Global Network page.

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Culture and responsibility

There is a strong business case to be made for taking a sustainable approach. Factors such as regulatory change, evolving consumer preferences and the rising cost of energy are causing many types of business to rethink their supply chain, manufacturing and delivery processes. Global shortages of natural resources, such as water, will inevitably have a fundamental impact on many industries. Companies looking to prosper in the long run need to make preparations years in advance, and family businesses are uniquely placed to be able to plan ahead and give themselves an advantage.

Sustainability

The way we make, buy and use products is changing. The local market has become a global marketplace, with products from the far corners of the world readily available. For many consumers, how a product is made and the sustainability of the ingredients or components are key considerations when deciding which products to buy. Changing customer preferences has created significant drivers for action and innovation. Equity analysts now consider climate change-related factors in company valuations, translating sustainability into a new value driver distinct from a marketing strategy.

National and international polices are encouraging the shift to a low-carbon, resource-efficient economy. Keeping abreast of the growing number of sustainability regulations and business incentives across jurisdictions will prove challenging, but it is necessary for all companies, given the connectivity of supply chains and markets.

Making your business more sustainable may require you to transform your infrastructure, systems, tools, skills and processes. But if you are able to adapt quickly and effectively, it may improve your performance and your competitive advantage in the marketplace.

Carbon emission management, the choice of a low-carbon supply chain, renewable energy tax incentives, efficient low-energy electron diffraction (LEED) buildings, the implementation of green IT and investing in cleantech innovations are all important issues that should be among your board’s priorities.

Climate Change and Sustainability Services (CCaSS) is a global team within Ernst & Young, offering advisory services to help you make sustainable changes to your company that could lead to competitive advantages and reduce risk.

Corporate and social responsibility

There is a growing emphasis on corporate and social responsibility (CSR). CSR is a self-regulating determination to apply corporate conscience, good citizenship, social performance and sustainable responsibility to your business – the very fundamentals on which many family businesses were built. The goal of CSR is to embrace responsibility for a company’s activities and encourage a positive impact on the environment, consumers, employees and communities.

Customers and employees alike are often attracted by a company’s ethical commitments. These can include using local products, using renewable resources, hand finishing products, avoiding the use of cheap labor and providing excellent after-care services. The popularity and growth of “Fairtrade” products that meet agreed environmental, labor and developmental standards, encourages all companies to review their international policies and supply chains.

Stakeholder management and sustainability reporting

You can’t manage what you can’t measure. How a business defines, measures and improves performance is becoming one of the most important tasks. It is a vital component of an open and trusting relationship between a company board and all its stakeholders.

Sustainability reporting focuses on the highly charged risk areas related to a company’s environmental and social performance. It provides an objective benchmark and confirmation of the actions that a company has taken.

Regulatory requirements for reporting are different from country to country and practices vary by sector. You would be wise to take advice locally, through a global network such as that developed by Ernst & Young. You may need to change your operational mindset from internal process to external stakeholder requirements and consider adopting international standards.

Corporate culture

Family businesses differ hugely to large corporations. They tend to be underpinned by the values of the founding family. The energy of generations of family members may have gone into making the business a success. Families have an emotional connection to the company, and it can mean much more to them than a purely financial concern. They take it personally when times are hard and do their utmost to shield loyal members of staff from the negative consequences.

Fortunately, family businesses are in a unique position to take a longer view, as they are often less driven by the pressures of quarterly results and shareholder dividends. The culture of quick wins and shortcuts that can tarnish a business brand can usually be avoided.

Your business should build ethical considerations and values into its performance strategy and align it with the achievement of company goals. If you see your company vision wavering, you may consider introducing change programs that help your staff to live your vision and values in their everyday work. This is especially important for staff in customer-facing positions. A workforce  that understands and shares your values can give you a competitive edge in a crowded marketplace.

Foundation management

To ensure that the benefits of success reach beyond the business, many families have decided to set up charitable foundations or establish a trust that manages their ongoing legacy and investments.

As well as helping the less fortunate and supporting important causes, a foundation or trust can be a tax-efficient investment and an excellent promotional and sales tool. Some family members may excel at managing and publicizing your family foundation, or relish working with beneficiaries to achieve results that reflect favorably on your family business and grow your global reputation.

Ernst & Young can help you establish your own foundation or charitable institution with an appropriate structure to meet your requirements, offering informed advice to help ensure that you follow the most tax-efficient route. We can then provide practical assistance and ongoing support. Our multidisciplinary team of accountants, lawyers and chartered tax advisors can help guide you on the international aspects of charitable giving. For example, we can establish cross-border charitable structures that allow tax-free donations in various regions of the world.

How Ernst & Young can help you retain your culture and act responsibly

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice.  We can work closely with your family and your board, to explore what you would like to achieve regarding culture and sustainability. Together, we can:

1. Determine your requirements

2. Assess your strategy and how climate change, sustainability and ethical trading influences it

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices. If you have international interests, our offices in over 140 countries can provide you with the local support you need.

We confront the growing complexity of culture and responsibility issues from a variety of angles, examining the subject from both business and personal perspectives. Our services include help and advice on:

  • Sustainability reporting and reporting improvement
  • Low carbon transformation and performance improvement
  • Renewable energy tax incentives
  • Supply chain from a sustainability perspective
  • Cleantech innovation
  • Internal audit services for stakeholder communications
  • Establishing and managing a charitable foundation

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services aimed specifically at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help you promote your culture and social responsibilities in ways that enable you to succeed for generations. For more information on the Ernst & Young Family Business Center of Excellence, and for details on how to contact your local family business team, please visit Our Global Network page.

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Balancing risk

Risk is an important part of any business. Without taking risks, growth would be impossible. However, the leading companies are not those that take more risks, but those that understand and control the risks they are taking. Good risk management leads to more confidence, better decision-making and sustainable growth.

Our Growth DNA of Family Business model identifies the many different aspects of running a business that have risk associated with them. For example, if you have not planned for succession or future management changes, you are at risk of the business suffering from a loss of direction and problems arising through ownership disputes. If you are not making sustainability and ethical trading part of your business strategy, you may risk damaging your company culture and brand values, and miss out on potential competitive advantages. And if you are not identifying the risk associated with new technologies, you may be limiting the development of new products and constraining your ability to grow.

Balancing risk and opportunity

The demands on family businesses have changed dramatically over recent years. The need to be able to react quickly to market developments puts additional pressure on your business’s flexibility and adaptability. Increasingly complex client requirements, a growing variety of products, ever-shorter product life cycles, rapid internationalization, complicated technical solutions and external factors in the business environment all influence a company’s ability to manage its risks.

Forward-looking risk management, combined with an effective control system, can help you manage a wide range of risks:

Strategic risks may come from internal causes, such as conflicts of interest between family and management, lack of talent with appropriate skill sets and inefficiencies in business planning and sustainability programs; or from external events, such as unpredictable political environments, supply chains and customer purchasing patterns. Unstable relationships with business partners can cause your business to suffer. Inconsistent resourcing and lack of standardized processes can bring problems for widespread organizations and those with shared services infrastructure.

Operational risks can be encountered through management of human capital, lack of cost control, inadequate physical infrastructure and unexpected supply chain interruptions. If you are operating internationally, there can be language problems, logistics problems, security breaches and failure to react to economic fluctuations. Illness, or even epidemic outbreaks, can threaten your workforce. Acquisition and investment risk can stem from financial issues, and also through inconsistent business practices and integration difficulties.

Financial risks can arise from many aspects of your business; especially when you are globally active. Such risks include: varying governance models and practices; economic instability; currency and interest rate fluctuations; complex tax laws and regulations; major differences between local and international accounting standards; and failure to manage and control capital and operating costs.

Compliance risks can be caused by inaccuracies in information presented to regulatory agencies. Frequent changes in regulations and different local laws make it difficult to keep up with the latest rules. Fraud, corporate deceit and employee theft in family businesses tend to be minimal, but these are still risk factors that cannot be overlooked. Unless you act sustainably across your enterprise, you are also at risk from the implications arising from producing socially irresponsible goods and services.

Having a proactive risk attitude and appetite

To counter the proliferation of risk, companies are being forced to re-evaluate their business processes. In some family businesses, systems and processes may have evolved over the years and require reassessment. Your brand values, your ability to function as a fast-moving business, your customer loyalty and your financial stability all rely on you taking a proactive risk attitude and encouraging the same risk appetite throughout your workforce.

There are clear ways to minimize the risk of error and malpractice. These include internal control systems with restricted access rights, master data management and a clear division of roles in operational processes. To manage risk effectively, you need to have an agreed terminology and consistent assessment levels across the company. This facilitates the fast identification and escalation of serious threat. You should broaden the scope of your risk assessment to include third-party risk, supplier risk, credit risk and counterparty risk. You are advised to build flexibility into long-term contracts and obligations and undertake scenario-based risk planning (for example, reverse stress testing).

Decision-making

Risk management is becoming increasingly important for companies and more influential in management decisions.

Companies should aim to establish an enterprise-wide view of risk across their entire global operations, develop contingency plans for key risk areas and establish an internal audit function and control culture. Your board needs to understand your risk environment, integrate risk assessment as a core part of strategic planning and review its scope regularly.

Good company management and transparency are particularly essential for family businesses. To balance risk and reward, you need to manage value at risk to a level aligned with your risk capacity and corporate strategies.

Our recommended steps for revitalizing your risk management capabilities include:

  • Ensuring that processes for crisis management are well planned and clearly documented
  • Broadening risk assessments to include third-party risk
  • Involving a broader group of management in scenario planning and employing enterprise risk assessment to avoid assumptions
  • Giving a board member direct responsibility for managing risks

Protecting your assets

To be successful in today’s business environment, it is vital to respond quickly to events and opportunities. So the continuous availability of critical IT resources is one of your most important success factors. However, our research shows that only 30% of companies have an IT risk management program in place that is capable of addressing the risks related to the use of new technologies.

Web-based transactions, cloud computing, social networking and mobile communications bring great opportunities, but they also make your company vulnerable to cyber attacks, data loss, application vulnerabilities, theft of intellectual property and risks due to reliance on external service providers and offshoring. Ernst & Young’s Advanced Security Centers can help you to identify current risks and help you take steps to reduce them.

Another big risk factor is the solvency of your customers and your supply chain. When the banks tighten credit, you could find that your business is affected indirectly. While credit insurance may be available, it increases costs. Staying in close contact with customers and suppliers to assess their solvency, and halting deliveries when they reach a set threshold of open invoices, may be viable alternatives.

How Ernst & Young can help you to identify and manage risk

Our extensive experience with family and entrepreneurial businesses means we don’t just develop theoretical approaches – we can also help you to put them into practice. We have a tried and tested way of helping you manage risks. Together, we can work to:

1. Determine your requirements

2. Assess your current business strategy and identify problems to fix and opportunities for improvement

3. Develop tailored approaches, models and policies

4. Select and implement appropriate measures.

With experience stretching back over 90 years, Ernst & Young has the credentials to make a real difference to your business and your family’s wealth. Regular training and our global network provide our teams with access to modern tools and international practices.

If your company has international interests, our offices in over 140 countries can provide you with the local support you need. To help you maintain control of your subsidiaries, we have risk professionals active wherever you do business. They speak appropriate languages and understand regional business processes.

To help protect your family business from risk, we use a suite of strategic, operational and outsourcing measures. We can help you to manage risk in the following areas:

  • Strategic, operational, financial and fiscal risk
  • Legal requirements, operational security
  • IT-related risk
  • Audit and expenditure risk
  • Review of contractual agreements
  • Corporate governance

Ernst & Young’s tailored services

Ernst & Young offers a wide range of professional business services aimed specifically at the unique requirements of family businesses. We know that one size does not fit all, so all our services are personalized.

We welcome the opportunity to help you identify and reduce the risks your business faces, so that you can succeed for generations. For more information on the Ernst & Young Family Business Center of Excellence, and for details on how to contact your local family business team, please visit Our Global Network page.

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