Europe’s family businesses continue to put the debt crisis of 2008 and 2009 behind them and remain confident about their prospects for the next year. The recent European Family Business Barometer, released by the European Family Business (EFB) and KPMG Enterprise revealed that 71% of business owners expressed confidence about their business in the future.

“Family businesses have had another strong year in 2017, and remain very optimistic about the future. In our survey, 57% of family businesses reported an increase in turnover over the past year and of those, 75% are planning on reinvesting their profits into the business. However, concerns regarding the potential impact of political uncertainty and the future of the European Union remain on their minds” comments Jonathan Lavender, Global Chairman, KPMG Enterprise. European family businesses reported that uncertainty associated with potential legislative changes that could impact the free flow of talent across borders is one of the main concerns and that continued integration and tighter political ties would be welcomed.

Key highlights:

• 71% of respondents reported feeling confident or very confident about their economic outlook for the next 12 months. About one quarter (24.97%) remain neutral about their prospects, while only 2% felt negative or very negative about the coming year. 
• 30% of respondents (53% of respondents in the UK) indicated political uncertainty was a top concern.
• 56% of respondents indicated that their preference for the future of Europe would include an increase in integration.
• 57% of respondents reported increased turnover over the past year, while 27% maintained turnover and only 13% saw a reduction.
• 43% of respondents identified the “war for talent” as the most important issue they face. The availability of labor paired with the increasing cost of labor was cited by 32% of respondents as putting greater pressure on family businesses.
• The need to balance family concerns and business interests was reported as important or very important to their business by 87% of respondents. This issue has grown sharply in significance each year since 2014, when 59% found it very important or important.
• 84% of respondents indicated that preparing and training a successor was important or very important to their business.

Political uncertainty remains key issue

With Brexit negotiations underway and ongoing elections flaming tensions, the current political climate remains one of the top concerns for European family businesses. Political uncertainty was ranked as a top concern by 30 percent of respondents across Europe and 53 percent in the UK.

While there are increased discussions about protectionist policies and regulation at government level, business owners would like to see more integration, including reforms to reduce the administrative burden, lower taxes, and greater access to talent at a reduced cost.

Reinvesting in the business

After several years of improving economic results, business owners are looking to the future and seeking new ways to build on their success. Family businesses are capitalizing on the momentum of their success by reinvesting their profits and growing their workforce.

Of the businesses that were surveyed, only 7% plan to take profits out of the business. The rest have plans for reinvestment that involve strategic initiatives such as building or improving infrastructure, manufacturing or marketing (47%) or planning to increase their workforce (28%).

“According to the survey results, Romanian family businesses seem much more likely than family businesses in the other European countries to reinvest their profits in their own business (60%) as opposed to planning for external investments like mergers and acquisitions (7%). This may show the growth potential the Romanian market still has for organic growth as compared to more mature markets in Europe” says René Schöb, Tax Partner, KPMG in Romania. ”40% of the surveyed companies also estimated that the main driver behind revenue growth in 2018 will be market demand rather than other factors, such as new product or services launches (13%) or intelligent marketing (13%)” Schöb adds.

The war for talent is intensifying

Family businesses are competing with industry giants for employees. This competition, paired with a drop in unemployment in Europe has made it difficult for businesses to find the talent they need. While 44.7% of business owners plan to bring in additional staff, the “war for talent” is a growing concern, as 43% report a lack of skilled workers as a significant concern for the year ahead.

“The ‘war for talent’ has increasingly become an issue for European family businesses. Demand is outstripping supply and driving up costs. 32% of respondents cited increased costs of labor as a significant concern that is putting pressure on their family business” says Jesus Casado, EFB Secretary General. “Not surprisingly, family businesses are calling for improvements in labor regulations - 41% identified ‘more flexible labor market regulations’ as one of the top two changes that would boost the growth prospects of their business. The dual educational system is something that must be promoted to ensure that businesses have the right skills to keep growing.”

Continued concerns around profitability and competition

In addition to the ‘war for talent’, some of the challenges that have plagued family businesses in recent years such as a decline in profitability (36%), the increased cost of labor (32%), greater competition (37%) and potential regulatory changes (28%) continue to cause concern.

Balancing the interest of the family and the business

Finding the right balance between the interest of the family and that of the business remains a key concern for family businesses – and was reported as important or very important by 87% of respondents. This issue has consistently grown in significance since 2014, when only 59% felt it was important. Leading family businesses are increasingly establishing rules, procedures and processes as well as mechanisms such as family councils to manage expectations of family members and avoid conflict.

Overall, the Barometer indicates that improved economic conditions and investing in innovation is paying off for European family business owners. If they can continue to overcome their challenges and find the right talent, their growth should translate to a bright outlook for the future.

About the Barometer

The European Family Business Barometer is based on the responses to an online survey from over 1,100 questionnaires which were received from family businesses across 26 European countries, including Romania, from 7 May to 23 August 2017.