2020 Year in Review – Family Businesses
Looking back on 2020 2020 has been a turbulent year for many family businesses across Scotland, with most sectors hit in some shape or form by lockdowns and restrictions caused by COVID-19. The vast majority of businesses are now operating... Read more
Blog15th Dec 2020
Looking back on 2020
2020 has been a turbulent year for many family businesses across Scotland, with most sectors hit in some shape or form by lockdowns and restrictions caused by COVID-19. The vast majority of businesses are now operating under circumstances that are very different to the start of the year, with most having to embrace new working practices to function in the new normal.
The pandemic has given many family businesses a rare opportunity to advance their digital technology and we have seen a trend towards tech being used to improve productivity. The dynamics of family owned businesses have been in some ways beneficial throughout the coronavirus crisis, as owners are able to make fast decisions to manage their customer base and supply chain issues.
Discussions with clients
From our discussions with clients throughout the past nine months, taking care of employees has been the number one priority paramount, with many business owners viewing their employees as an extension of their family. Frequent communication and honesty with employees throughout lockdown have been recurring themes. Family businesses tend to be more successful in retaining employees, which has been beneficial throughout the pandemic and should hopefully support businesses as they come out of the other side of COVID-19.
Many retirements and succession plans have been postponed due to COVID-19, with owners reluctant to sell while multiples in the market are low, and there has been a reluctance to pass on the business in a time of crisis.
What does 2021 have in store?
The COVID-19 pandemic has undeniably put concerns surrounding Brexit on the back burner for many businesses, but the impact of the UK leaving the EU obviously creates further uncertainty for many businesses. A recent survey by Business Gateway found that 52% of Scottish SME’s questioned anticipated some positive changes from COVID-19, including more efficient working practices and better resilience to the impacts of future disruption. This is in contrast to only 38% of respondents expecting positive outcomes from Brexit.
Organic growth prospects in 2021 will be hampered by the uncertainty around COVID (despite positivity around vaccinations) and Brexit, which may push more family businesses to potentially seek strategic acquisitions to enhance growth. Funding acquisitions with debt may be difficult, with lenders being very selective, which may push more businesses into seeking capital from private equity to fund future growth.
There are also strong signs that the Chancellor may look at increasing Capital Gains Taxes (“CGT”) and / or scrapping Entrepreneurs Relief in the Spring 2021 Budget, following the report published in November by the Office of Tax Simplification which suggested a greater alignment of CGT and income tax rates. Our Corporate Finance team expects this to result in a rush for some business owners to consider looking at a potential sale of all or part of their business to “bank” the lower tax rates. Retirement and succession plans, on the back burner in 2020, are back on the agenda.
2021 will also see businesses that have taken on COVID-19 support – particularly CBILS loans – begin making repayments. Where local restrictions are not entirely relaxed and trade is not fully back to “normal”, businesses may have difficulty generating sufficient cash flow to make repayments. We would expect businesses looking to refinance CBILS loans to take advantage of no early redemption charges. Adequate forward planning and forecasting should begin as soon as possible for businesses that are required to make repayments, to identify any potential crunch points.
AAB advising Family Businesses
From its inception 30 years ago, AAB has been supporting family businesses in the UK, and currently works with more than 1,000 family businesses, making up around 75% of the firm’s SME client base. Family businesses are fundamental to the Scottish economy and will be key in supporting the recovery of the nation following the pandemic.
Earlier this year, AAB formed a dedicated team to support this client base with a central hub of knowledge and experience in the complex financial and business advisory needs of families, both business and personal. We recognise that family businesses are unique and require a different approach to other corporates, providing a team with the ability to identify and provide first-class advice above and beyond the core business compliance needs. AAB has also become an active member of Family Business United, a voice for the global family business community and an invaluable source of insight into the sector.
Find out more about how AAB supports Family Businesses here