Ease of doing business for MSMEs: A study of 350 family businesses in the country from May till October 2022 by business school SP Jain Institute of Management and Research (SPJIMR) released on Monday highlighted the lack of a clear successor or succession plan among top family challenges faced by family businesses. Lack of clearly defined and/or written roles and responsibilities for all family managers, including women and lack of a conflict resolution mechanism within the family business were other top family challenges.
A greater proportion of manufacturing than service enterprises reported such family challenges, while in terms of size, small enterprises seemed to experience these challenges greater as compared to their other-sized counterparts, the study India: State of the Family Business Report by SPJIMR’s Centre for Family Business & Entrepreneurship (CFBE) noted.
Other than family challenges, growing competition and shrinking markets was the top challenge cited by family businesses irrespective of size while the high cost of raw materials, lack of finance and the problem of receivables did not feature in the top business challenges.
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In terms of business performance during the financial year 2021-22, more micro and small family enterprises reported stable or increasing sales, market shares, profitability, Return on Assets (ROA), Return on Equity (ROE), profit margins, and employed greater (or the same number of) people compared to medium family enterprises. In fact, the performance of micro enterprises was clearly above that of its other MSME peers on all the metrics.
“Our survey reveals that despite a seemingly difficult and uncertain business environment, small and medium family businesses seem less pressurized by business developments. In fact, family businesses will face greater headwinds from the family side than from the business side, with issues of succession and governance looming large and threatening their business performance,” Tulsi Jayakumar, Executive Director, CFBE and author of the report said in a statement.
Jayakumar said management schools and consultants will need to train the senior generation family members of the importance of “letting go” in order to preserve the family business they have invested so much in when it comes to succession planning.
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“Many of the respondents among the senior gen in our survey expressed their intent to continue running the business as long as they could. This would of course demotivate the talented and independent among the next-gen. Transgenerational entrepreneurship can be fostered only through paying sufficient attention to family dynamics,” he added.
Out of 350 family businesses (139 in manufacturing and 211 in services) surveyed, 105 were micro units, 140 were small businesses, 70 were medium enterprises and 35 were large businesses. For the year ahead, 64.8 per cent of micro family enterprises expected increased growth in comparison to 75 per cent of small enterprises and 69 per cent of medium enterprises hoping for the same in the year ahead.
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