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With many Australians shifting focus to support local businesses and Australian made products, COVID-19 has provided family businesses with an opportunity to implement positive changes that many businesses have been contemplating for some time – with renewed support from Australians consumers.
In this podcast, partners and family business advisors David Gibson and Kirsten Taylor-Martin speak with us about what makes a family business tick, getting the right skills in the right roles, and whether COVID will be a catalyst for a changing of the guard.
Welcome to Boardroom.Media. My name is Velvet-Belle Templeman, and you're listening to Grant Thornton’s Navigating the New Normal Podcast Series. I'm here talking to Kirsten Taylor Martin and David Gibson, partners specialising in family business at Grant Thornton. Kirsten is a family business adviser, specialising in developing governance structures and succession plans to ensure family businesses grow so generations to come. And David has over 15 years’ experience providing advisory services to some of Queensland's leading privately owned businesses and family groups. Thanks so much for joining us, Kirsten and David.
Thanks very much.
Thank you.
Now, firstly like me, a lot of people don't realise just how many Australian businesses are family owned and operated, something like 70 per cent and we're not just talking about small cafes down the road are we?
No, this is a real misconception. People feel that family business means small business and don't get me wrong, the little corner store or the cafe, or a lot of the franchisees, your Pizza Huts, Gloria Jeans are family businesses, but people actually drive past and walk past family businesses every day. So you've got the likes of Kennards Self Storage, Flower Power, King Living, Scenic World and Cue are family businesses. So they coming in all shapes and sizes, so quite large businesses are also family owned.
Yeah, absolutely, Kirsten. Up in Queensland, some of the biggest businesses in the market up here are still family business based and look, certainly some industries, the majority of participants will be a family business, primary production and agriculture is a great example of that. And I think it's important to note, the size of the asset by the family business controls, FDA notes that it’s about $4.3 trillion, such a huge part of the Australian commercial landscape there.
And are family businesses that much different to corporate businesses?
Yeah. Look, I think one of the key ways family businesses are different really is in the culture and the ethos. Many owners really view themselves as custodians of business to be passed between generations and look I think when adversity hits as in the current environment, quite often that can lead to some real resilience, which provides an advantage over some of the more corporatised competitors. And look, I think one of the other key ways there is just in the perhaps nimbleness of decision making and that can lead to capitalising on opportunities more quickly than their competitors.
I'm also finding that family businesses, their family values are shining through. They can really take their customers and their suppliers on the journey that they're going through. And we're finding that consumers are really quite loyal at the moment. They've changed how they want to buy. They really want to buy an Australian, they want to support Australian businesses. So I think this is where family businesses definitely have their advantage. And as long as they being really honest and telling the story and allowing the consumers to come along on the journey, it could be a real advantage for them.
And coming into this pandemic family businesses prepared for doing business during COVID-19?
To be honest, I don't think any business was ready for the pandemic and family business is just no different. Where they are different is being family they really do come together in a time of crisis and I really want to fight for their family business. You also find that they're incredibly entrepreneurial. So at a time when you really needed to innovate, they've been able to. The other thing you find is although at the beginning they will risk absolutely everything to start with business, once the business is successful, they become incredibly conservative. So when you deal with family businesses, they usually have large amounts of cash in the bank and they have very low levels of debt. I think this is really going to help them come out of the pandemic easier and maybe it makes them look like they've coped or they were prepared for it, but I don't think they were actually preparing for a pandemic. It's just how they are in nature.
Yeah. A couple of the practical examples I’ve seen, potentially the biggest family businesses with strong governance structures and potentially boards with non-family members involved, they’ve been able to handle the disruption a little bit better, I think, given some of those process and, I guess, skillset advantages that that can bring. And I guess, at a practical level, some of the challenges around remote work here and ability to, I guess, quickly shift areas of operation in some of our family businesses potentially struggle with that a little bit more as opposed to some of their bigger more corporatised competitors. I think looking at our experience as a firm, that element of remote work is really going to be with us for a long time to come.
Kirsten and Dave, what sort of things are you seeing and hearing from your clients and how they're innovating during this time?
A really great story. And I guess this is a little bit more of a pivot than an innovation, but a Scenic World. So Scenic World is in this Sydney Blue Mountains area and is in the tourism industry. So obviously COVID just made their business come to an absolute halt. But what they did is they went back to their family values and why are they in business? And a large part of it is to ensure that their local community had jobs and to give back to their local community. So they actually set up a popup store so that they could still keep some of their people in a job, but the store had things like toilet paper and hand sanitizer, which at that point in time were really hard to get your hands on and the store delivered the items to their local community.
So it was a really nice example of a total pivot. And you can imagine that business, that family, how would you be feeling when it just absolutely comes to a halt, but they were still able to get together and really go back to what their values and why they're in business and come up with a really creative idea to ensure that they were still delivering on the reason they were in business.
Another really great example is a collaboration example, of family businesses, but a local restaurant obviously had to quickly move to takeaways. And instead of using a Menulog or an Uber Eats, they approached another local family business in the limousine area because obviously their work had stopped and they asked whether they would like to deliver the food. So two family businesses, in two totally different industries coming together so that the consumer was receiving restaurant quality food delivered to them in a limousine. I just think that's a really nice example of how family businesses do things differently and really support one another.
Yeah. Look, I’ve seen some great examples of innovation in supply chains and supply chain security, I think has been on a real pressure in this crisis. And people having to ask things of their suppliers that they haven't asked before, get a little bit creative in terms of you know, sourcing product with that focus on Australian made. Some great examples there of in the medical industry of I think their favourite gin distillery in Victoria quickly shifted to production of medical grade hand sanitiser, which really allowed them to keep their operations going at really short notice. There's been some great examples of just a need to do things differently at short notice in our client base.
Some really unique innovation examples there. Thank you. And it sounds like businesses really rose to the challenge presented by COVID, but with Melbourne going back into lockdown and an announcement on JobKeeper expected this week, how are your clients feeling at the moment?
I think pretty apprehensive. I think prior to the Melbourne situation clients were feeling a little bit more positive around certainty of the future here. But look, I think particularly given the Treasurer’s announcement on Thursday the 23rd around, I guess, their midterm review of JobKeeper and what that's going to look like going forward, will some industries be supported? Support might be pulled back for others. I think that's really keeping a lot of people awake at night, you know, family businesses quite often really view a lot of their employees as part of the family. And I think being able to underpin that relationship going forward is really challenging for a lot of people.
I think everyone's feeling really challenged for this ability around FY21 forecasts. There’s conversations starting with the banks where support is being provided around various types of debt obligations. So there's a need to forecast FY21. Everyone is saying it’s really hard to predict beyond three months, six months at the most. Things are changing so quickly. A really good example, or a really good solution we've seen there is really this concept of rolling three-month forecasts rather than a full year FY21 budget and banks seem quite receptive to that approach. It’s a practical, common sense solution, I think given the current challenges facing everyone.
Yeah, I agree because they're quite conservative in nature, family business owners, they're quite nervous at the moment. And I think also just because they have to make some hard decisions that they don't want to make. In many situations in the larger family businesses, they know personally they'll be okay, because they have wealth and property behind them. But for the business, there's going to be some tough decisions. And I'm also seeing quite a few are just starting to sell down properties and assets, even though they don't need to, but it's just their conservative nature and they just want to have the cash available to them should something happen.
That really brings home the importance of moving online and perhaps embedding some long term changes. Are you seeing that start to happen?
Look, I think we're starting to say perhaps the restarting or the acceleration of some conversations around succession here, particularly with a view to business value. I think it's a fair general proposition that business in impacted industries, have seen their fair market value drop from this time 12 months ago and that might provide, I think, some opportunities here along that succession piece. I think particularly around the funding need to progress some of these transactions and certainly there's some issues there from a taxation perspective as well, whereby a lower business value may allow access to small business Capital Gains Tax concessions as an example, which might make some of those transactions easier to facilitate.
I'm not sure I can imagine being in business with my parents or grandparents. Do you think COVID will provide that pivotal moment where we can see a change in the guard for some? What do you think the future holds?
I think this is an absolutely fascinating area. We have been predicting for the last 10 to 15 years that we're going to see this wave of generational change and it just doesn't happen. So currently we have in Australia, 5,000 people turn 65 every single week. And we thought that that would create a wave of generational change. But what we've actually seen is we have 80, 90 year olds still running the family businesses and they have absolutely no intention of passing the baton whatsoever to the next generation. But what you do find is often it can be a crisis that makes that decision happen. So for example, if the owner's best friend passed away or something like that, it's that trigger point that makes them realise life is short. I need to get out.
And I really wonder is this pandemic going to be that crisis point? Because there's a few different things, if you're an owner and you have the view that I've done business with way for so many needs, we're not going to change it. I've been successful. You're really going to struggle in this current climate because you have to be thinking outside the square at this point in time. So if you're not listening to the next generational ideas, the business will struggle. The other thing is with all the COVID safe policies, things were changing and still are on a daily basis. Are 80/90 year olds going to want to just keep up with all of that constant change. Could that be the point that makes them realise life’s too short, it's time for me to get out. And the other thing is that they’re in that age bracket where they're really at risk, so their family's not going to want them to be going out and meeting with customers or suppliers or coming into the business.
So could that be the point that makes them realise it's time to pass the baton to the next generation? But the only thing I want people to be mindful of is when people do pass it to the next generation in a crisis moment, that's where things can often go wrong. So currently in Australia, when you pass the baton to the next generation from second to third generation, only 12 per cent are successful. So we need to be really careful about where we're not creating that kind of, where family businesses just can't divide that change because it was just done at a crisis moment and they haven't bought the process through.
But if this pandemic is creating that moment for different businesses. Please contact your Grant Thornton relationship manager because we have a freedom model and our freedom model goes through the seven hurdles that we see can really undo a successful succession plan. So it's time to start planning if this is the crisis that makes you realise it's time to get the next generation ready to take over the business. So David, are you a gambler? Do you think this is going to be that moment where all the transitions start to happen?
Yeah, great point, Kirsten, absolutely. I think the succession issue is really going to become more important. Over the next period of time, I think all our clients are really examining their business models, potentially looking at redesigning business models around, I guess, this concept of the new normal that's going to be with us for a long time. It's clear, this is really a marathon we're in. It's not going to be out of it quickly.
I've already observed in some of my clients their conversation being well, who has the right skillset in our family that may be needed for the business over the period ahead and potentially that's some of the younger generations. Some of those skills around digital marketing and ecommerce, logistics, distribution. They’ve become incredibly important really quickly. So potentially are those members of the family, all of a sudden, really the ones to help drive a reshaped business into the future? And indeed, in some conversations, clients are now reflecting, well maybe do they need to look outside the family, in some cases for the first time, I guess, with people with the right skills to help guide the business into the future. So, absolutely, I think it's a an issue that's really become more important very quickly for a lot of our clients.
Kirsten and David, thank you for your time.
Thank you.
