The great majority (84 per cent) of Irish family businesses reported growth in their latest financial year, with 55 per cent reporting double-digit growth and 82 per cent saying they expect to grow in the coming two years. These are among the key findings of PwC’s 2023 Irish Family Business Report Transform to Build Trust which polled over 2,000 family businesses across 82 countries including Ireland.
“The survey results tell us that Irish family businesses have come through massive challenges with great resilience over the past few years,” says Mairead Connolly, a partner with PwC Private. “They turned in an exceptionally strong performance during the past year. The 84 per cent of Irish firms reporting growth is 13 per cent ahead of their global peers.”
Created following the acquisition by PwC of boutique tax practice Twomey Moran, PwC Private is dedicated to serving private businesses, family business ventures, high net worth individuals and entrepreneurs.
“We advise family businesses and their owners right around the country on pretty much everything,” Connolly explains. “That includes business performance, tax, corporate finance, governance, cybersecurity, ESG [environmental, social and governance], talent strategies and a lot more. We have over 150 specialists in the practice with deep expertise across all those areas.”
Positive outlook
The PwC Family Business Report also reveals a positive outlook for the future on the part of Irish family businesses, with Irish firms more confident than their global peers. “Eighty-two per cent of Irish family businesses expect to grow over the next two years compared to 77 per cent of firms globally expecting growth over the same period,” Connolly adds.
“It is clear that they have knuckled down and focused on the core business and on controlling costs to get through a very tough time,” she notes. “However, there has been an opportunity cost to this, and they may not have been giving enough focus to innovation and R&D.”
Indeed, the Family Business Report finds that intentions to introduce new products and services fell from 44 per cent in 2021 to 37 per cent this year. Expanding into new markets was also down from 47 per cent in 2021 to 32 per cent, while just 26 per cent of Irish family businesses are committed to increasing investment in R&D and innovation.
This change in focus is understandable, according to PwC Private consulting director Ruth McNamee. “Family businesses have tended to take a long term view but in the past few years there was a switch to more short-term thinking as they worked to deal with the crisis at hand. They now need to balance those short-term urgent needs with a long term strategic view.”
Connolly believes the improving economic conditions will give businesses a chance to rebalance their strategies. “They need to take the opportunity to lift their heads and take in the oxygen as inflation hopefully levels off and the impact of Brexit and Covid settles down. That will allow them work on areas like ESG and building trust with customers and suppliers.”
The good news is that 68 per cent of Irish respondents to the PwC survey believe that they are fully trusted by their customers. That compares very favourably with the 51 per cent of firms globally who said so.
More to do on ESG and technology
McNamee believes an opportunity exists for Irish family businesses to do more on ESG. “Only 21 per cent say they have a full ESG strategy in place,” she notes. “But we are seeing a big increase in the number of clients coming to us for support in developing ESG strategies. It’s about more than just the company’s carbon footprint. It is about the future viability of the business.
“When you place an ESG lens on it, will the business still be there in 10 or 20 years’ time?” she continues. “How will climate-related events like extreme heat, wildfires, storms, and floods around the world affect the business. These events can wipe out businesses in the regions where they occur, and this can have knock-on effects on Irish companies. Climate change will also cause economic and demographic shifts. We are also seeing shifts in consumption patterns caused by ageing populations and other factors. Businesses have to ask where their future market is going to be. We are seeing more companies looking outside Ireland to expand their customer base for the future.”
Technology also has a role to play as businesses navigate the changing landscape, McNamee contends. “Businesses need a fit-for-purpose technology platform to engage their customers and drive efficiencies. This presents an opportunity for competitive differentiation. It will also be key in preparing for reporting under the Corporate Sustainability Reporting Directive (CSRD) and other regulations.”
This will require investment in skills. “There is a need for family businesses to focus on upskilling generally and on digital skills in particular. Only 39 per cent said they have strong digital skills in their business.”
Cybersecurity is another area in need of attention with just 13 per cent of Irish family businesses claiming to be advanced in that area. “We have seen very clearly the devastating impact that cyber breaches can have on businesses,” says Connolly. “Cyberattacks represent an existential threat for many family businesses. Trust is at the core of these businesses and loss of trust due to customer data being compromised as a result of a cyberattack can do very severe damage. Companies need to put in place the infrastructure to protect themselves against cyberattacks.”
Irish businesses are doing rather better in other areas including talent. “They are more likely to have women on their boards than their international counterparts,” Connolly notes. “They are doing quite well on diversity and inclusion, and they could probably blow their trumpets a little louder on that.”
In common with other businesses, they are struggling to hold onto key talent. “The multinationals are good at incentivising and rewarding to gently lock in talent,” she explains. “A good way to align employees’ rewards with the organisation’s is through share-based incentives, for example, growth shares, where employees get more as the company grows. Private businesses need to think about it. Pension planning shouldn’t be forgotten either. Incentives needn’t be very costly and can be structured tax efficiently. There is low-hanging fruit, and you can get a lot of benefits early on if you approach it correctly.”
Investment in technology also helps. “We hear about people moving on because they are tired of doing mundane work,” McNamee points out. “Technology isn’t about replacing jobs; it’s about making them more interesting. Spending time getting actionable insights is a lot more enjoyable than working on spreadsheets five days a week.”
Supports needed
Family businesses will need to increase their investment in R&D and innovation if they are to maintain current strong growth levels. “The Government can help by enhancing supports for R&D, for example greater SME grants for such activity, and increasing the rate of the tax credit to 30 per cent in line with a number of our continental neighbours,” says Connolly.
Other issues she notes include succession and rewards. “Family business owners need to think about succession in the longer term, but they can be a bit fearful of those decisions. Improvements to some of the reliefs to make it attractive to transfer family businesses more tax efficiently would help. The Key Employee Engagement Programme scheme could be tweaked and enhanced to help family businesses keep their best talent for longer. More could also be done to open up funding sources. For example, incentives could be put in place for business angels to invest money as well as their expertise to help professionalise less mature family businesses. We have called for these types of supports in our PwC Private 2024 pre-budget submission.”
McNamee concludes by emphasising the importance of getting advice from people who understand the unique nature of family businesses. “We often get clients coming in to discuss personal issues with us. In many cases, the business is their whole life and family matters are intertwined with the business. We understand that. We understand the dynamics of family businesses and we bring that to bear when we work with our clients on growing their businesses.”
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