Many business owners in the UK are driven by short-term priorities like selling the company to make money and do not pay enough attention to longer-term strategic objectives, according to a new report.
Research carried out by the Economist Intelligence Unit for Ernst & Young found that as many as 85% of business owners in the UK plan to accelerate their divestment plan over the next two years. Of the total, 32% of UK corporations are in the process of, or are planning to divest in the next two years.
More than two-thirds of respondents admit that the main factor determining their decision to sell is short-term financial gain, and this in term is often driven by the need to offload debt.
The difficult economic conditions of the last few years is accelerating these divestments, but the research points to a recurring criticism of business owners in the UK, namely that too many of them are looking to realise short term gains rather than building businesses for future generations.
Data has consistently shown that UK firms are more likely to sell to private equity groups than companies in Germany, where multi-generation family controlled businesses are more prevalent and play a big role in the success of Europe’s largest economy. This is explained by many factors, but the abundance of private equity groups in London, ease of access to capital markets, the tax regime, government policy as well as the greed of owners all play a role in the UK’s short-term business mentality, say analysts.
Nevertheless, the lobby and membership group the Institute of Family Business reckons that this short-term portrayal of the UK business mentality isn’t completely accurate, especially when it comes to family businesses.
"Family businesses tend to be more risk and debt averse, meaning they are far less likely to need to divest assets to meet short term obligations,” said a spokesman for the group. “This is reflected in the insolvency rate following the financial downturn with family firm insolvency rates much lower across all sizes compared with non-family businesses."
The London based IFB, which has around 6,000 family business members spread across the country said that family businesses are run not to maximise short-term share value or quarterly profits, but to generate long-term sustainability and returns.
“Our members often tell us they have no interest in quarterly returns figures, but instead look at investment returns over five, 10 and 25 year horizons,” said the spokesman.