KPMG helps you keep it in the family

What are the factors for success in a family- owned business?

Family businesses are the backbone of our economy and face unique challenges.

 A family’s dynamic can play an important role in decision making and offers both opportunities and challenges.

When working with family-owned businesses, it is important to recognise the need to balance the needs and expectations of the family members in order to assist the business to grow. This is best achieved by having well experienced family business advisors with expertise in various disciplines. Thanks to our many years of experience of working with such businesses, we are able to leverage KPMG’s global expertise.

Our experts have identified three key pillars family-owned companies should address as part of their overall business strategy.

Growth: Helping family businesses grow

KPMG’s goal is to help create long-term prosperity for family-owned companies in Vietnam.

Because of this goal, we have set up a team of professionals, dedicated to offering practical information and advice taking into consideration that family-owned businesses are different from other types of firms and require a carefully tailored approach that takes into account the family component.

Growth strategy

One of the key elements to developing and succeeding in a family business is sustainable and profitable growth and this, of course, can represent a large amount of time and effort from all stakeholders.

To grow, the members of the family-owned business must carefully consider their market opportunities, which can include seeking out complementary businesses for acquisition, potentially divesting from non-core businesses, outsourcing functions to increase cost efficiencies and potentially expanding into other emerging markets.

Some of the following questions should be discussed when planning a growth strategy:

-Is the family ownership and management style appropriate for the growth strategy?

-How can the business best manage the uncertainties and risks that growth presents?

-What are the strategies to integrate new acquisitions?

-Is the company ready to expand overseas?

Assurance

It is crucial for the family-owned business to manage the risks in an environment of uncertainty at all stages. It is generally agreed that family owned-businesses have a number of competitive advantages over their non-family business counterparts in developing countries like Vietnam. However, if not properly managed, these advantages may not be realised.

Some questions to address include:

-Do some guiding principles exist to reduce conflicts in the family business?

-What are the internal and external controls that are in place?

Communication: Be a part of the conversation

KPMG globally has invested in developing a wide range of tools to support our clients in family-owned businesses. The wide range of tools at their disposal include various publications, case studies, surveys and a business blog site all related to family business issues.

Through such forums, business owners can ask our multi-disciplinary experts by taking part in the conversation online and join KPMG’s family business community on LinkedIn and Twitter.

Governance strategy

Sometimes, the family business can be negatively affected because of governance issues. Governance can be simply defined as adopting a decision making process. For this purpose, establishing a governance framework that takes into account a family constitution or code of conduct can be a good alternative to avoid future potential dissension.

To develop a sound governance strategy, the family needs to think through different scenarios and agree on family and business goals prior to critical decisions.

It’s important for families to recognise that a family business has a life of its own that transcends that of the family. That’s why a professional and structured approach to the management of the business serves everyone’s best interests. Better governance can improve business performance and help satisfy the expectations of all family members.

Succession: integrating the next generation

Planning for succession is critical to the long term success of a family business. Succession is often a challenge and it is said that less than half of all family businesses survive in transition from one generation to the next.

Managing the succession

The stakes are high when it comes to succession. Clearly challenges always exist in transitioning the business to the next generation.

To avoid conflict and ensure the needs of the business are met when the time to transfer ownership is right, planning well ahead of time is the key. The following questions should be addressed:

-Does the succession plan take into account both ownership and management aspects of the business?

-Is there a clear plan to integrate the next generation into the management of the family business?

-What is the strategy as far as the transfer of the business to the next generation is concerned?

Exit strategies

In cases where the next generation may not be interested in running the business, exit strategies become critically important.

There are numerous options to consider with an exit strategy:

-Do you know the value of the business?

-Are you ready to sell?

-lWhat are the tax, legal and regulatory issues to consider at exit?

Wealth preservation

Wealth preservation is a subject that often raises more anxiety than any other for those involved in a family business.

This is an area where our experts can help family businesses plan for wealth preservation and transfer wealth through transparent and tax efficient strategies.

Overall it is important to recognise that family businesses are different.  However, with sound planning focused around the three pillars noted previously, the potential of such businesses can be realised and often optimised.  With this in mind, family businesses in Vietnam should consider taking a structured approach to the management of the business to improve performance and help meet the expectations of family members and other stakeholders.

The views expressed by the authors here do not necessarily represent the views and opinions of KPMG Vietnam.

For further information, please contact:

Ronald Parks – Director, Tax & Corporate Services

and Hoang Anh Tuan - Director, Tax & Corporate Services