Family Businesses Lead the Pack According to Study. Here’s How They Can Do Even Better.

Alythea Ho
29-May-2019 18:24:03

FnB or Family Business

If you’ve just taken over the family business, good news. Your business is likely to be in good shape – especially because it’s family-owned.

 

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According to a Credit Suisse study, businesses with substantial family control consistently outperform their non-family-owned peers in three ways, according to the report:

  • Family businesses have higher revenues.
  • Cash flow is healthier in family businesses.
  • Family businesses listed in Asia Pacific (excluding Japan) boast more than double the relative returns on share price.

 

In short:

 

"Family-owned businesses are outperforming their peers in every region, every sector, whatever their size."
- Eugène Klerk, lead report author

So, what explains that success? As a second-generation manager myself, two points from the report stand out:

  • Family businesses prioritise long-term growth over short-term gains.
  • Family businesses have more conservative balance sheets and rely less on external funding to fuel growth.

 

In our experience with the family businesses amongst our customer base, these observations are pretty spot-on.

Huber's Butchery for example, is our SAP Business One client. They are also a closely-knit family business where the chef-founder still works together with his two sons.

 

SEE HOW FAMILY BUSINESS HUBER'S BUTCHERY SLASHED WASTAGE COSTS AND GAINED 40% IN REVENUE AFTER USING SAP BUSINESS ONE.

 

More than that, I’d even venture to say it’s these qualities that the right digital initiative – like a Cloud-based enterprise resource planning (ERP) system – can help you support the qualities of every successful family business. And even bring that business to the next level.

While it sounds like a bit of a stretch, a Cloud ERP system can help you optimise back-end processes, so you free your workforce up for move value-added tasks – like strategic initiatives to help your business grow.

But let’s talk about how it can help bolster the qualities that make family businesses successful.

 

1.    Long-Term Growth Priorities vs. True Cloud ERP Scalability

 

Family businesses favour long-term benefits over short-term gains, which is reflected in their tendency to re-invest for the long-run.

More interestingly, successful family businesses in Asia (excluding Japan) place far more investment in research and development (R&D) than anywhere else in the world.

So how does that relate to your business?

Having just taken over the reins, it now falls on you to continue creating long-term growth.

While investing in the front-end for that purpose makes sense, paying attention to back-office functions like accounting can pay out.

Conversely, without good accounting processes and reliable accounting information, it can be difficult to understand the true financial health of your business -- and make well-informed strategic decisions.

Let’s illustrate this with a scenario:

  • You want a forecast of sales figures for the year ahead based on historical trends.
  • All the relevant data is stuck in silos – so your finance team must manually collate and reconcile it. And that’s a painfully tedious process, taking days or even weeks to do so.
  • Even more time is needed to interpret and turn the data into actionable insights.
  • The data isn't real-time and comes from various sources, so you're not 100% assured it's reliable enough to make decisions with certainty.

Where a Cloud ERP system comes in, is by integrating the key parts of your business – including finance, inventory, and sales.

That means less data re-entry and errors and a single, centralised data location. And the assurance that you’re making important business decisions from a single source of the truth. No more waiting days for reports on aged receivables to be pulled together.

Some Cloud ERP software even offer advanced, machine-learning-based forecasting capabilities. For example, an extension for Microsoft Dynamics 365 Business Central will predict inventory and sales movements based on historical trends.

 

2. Cloud ERP’s Low Upfront Costs Allow You to Conservatively Invest in Growth

 

 

 Because it's a Cloud-based system, you get to save on upfront hardware costs when you invest in Dynamics 365 Business Central.

There might be a focus on investing in long-term business growth in your company. But your more conservative stakeholders are probably going to balk at funding a large growth initiative like an ERP system.

According to the study, “the preferred funding of new investments by family-owned companies and by implication, future growth is largely carried out through conservative channels, mainly internally generated funds.”

The good news is that when you choose true Cloud ERP systems – like Microsoft Dynamics 365 Business Central or Oracle-NetSuite – you get lower upfront investment costs. That’s because you don’t have to invest in hardware like servers, or in additional staff to maintain the hardware.

The “subscription costs” of true Cloud ERP systems are also paid on a regular basis (i.e. monthly), which means your cash outlays are a lot more predictable.

In other words, you can invest in growing your business – without breaking the bank or taking away from what’s brought your business to where it is today.

 

Take Your Successful Family Business A Step Further and Grow it With the Right System

 

In summary, a Cloud ERP system can be the right tool to help you maintain the qualities that took your family business to where it is today: a focus on long-term growth, and funding that growth conservatively.

If you’d like to learn more about ERP systems and the value they can bring to your family business, click the button below to get a comprehensive overview and detailed explanation with the Ultimate Guide to ERP for SMEs.

 

New to ERP? Get the Ultimate ERP System Guide for SMEs here. 

 

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