Family businesses are outperforming non-family companies, with many achieving strong growth in the last year as most firms struggle to generate revenue, according to research from Credit Suisse and Ernst & Young.
The study found that 60% of family businesses surveyed saw revenue growth of at least 5% in the last year. Family firms were also more likely to outperform public companies largely because of their focus on long-term investment, according to the research.
“The family business model … is not only proving to be a vital engine of economic activity, but also the antidote to some of the structural failings uncovered by the financial crisis,” said Michael O’Sullivan, head of portfolio strategy research at the private banking arm of the Swiss bank.
The research also found that the cash flow returns that listed family businesses generated were consistently superior to the wider listed sector. This is backed up by the Credit Suisse Family Business Index, which has outperformed the MSCI Global Index over the past five years by 8%. To be included in the CS Family Business Index, families must own at least 10% of the voting shares in the business. Most would see that as a very broad definition of what constitutes a family business.
Family businesses were also less concerned about the eurozone debt crisis, with only 15% of companies saying it was a big concern. Nor were they particularly concerned about any credit squeeze, according to the research, with more than half saying credit accessibility was the same before the crisis as it is now. That’s partly explained by another finding of the research that found that most have a long-term payback approach to investment and focus on internal rather than external financing models to fund future growth.
The long-term perspective on investing was viewed as crucial for the success of many family businesses, with at least three-quarters of those surveyed seeing it as crucial to their success. That’s backed up by the fact that 40% of companies are happy to wait up to 10 years for a payback – what the research called “patient capital”.
When it came to succession, the research found that families are sticking together, with a strong desire to pass on to the next generation.
Credit Suisse and Ernst & Young surveyed 280 companies across 33 countries, all members of the Family Business Network International.