Family owned companies are ‘star performers’: Credit Suisse

 

Many West Midlands SMEs featured on this website are family owned, including Sparkhill’s Indestructible Paint, Heritage Silverware in Small Heath, Smethwick’s Professional Polishing Services, A Perry & Co of Cradley Heath and Smethwick’s DK Rewinds. Though none of these is listed on the stock exchange, their practice matches the Credit Suisse findings about long-term approaches and reinvestment.

Dominic Walsh reports on a 2018 study by the Credit Suisse Research Institute which found that, over time, family and founder owned companies quoted on the stock exchange outperformed equity markets in every region and sector.

It compared 1,000 listed companies, whose founders or descendants had at least a 20% stake, and found that revenue and profit margins were higher.

This was attributed to the long-term, conservative approach taken by family businesses, ‘a tendency to reinvest’ and a lower reliance on debt. One reader commented that it’s difficult for family owned businesses to borrow money without extensive collateral so they avoid it and go for slower, organic growth.

Though “they underperform non-family-owned businesses during periods in which economic conditions or sentiment improve”, in the long-term, family-owned companies deliver stronger revenue growth in all regions and higher levels of profitability. See Michael O’Sullivan’s exposition in this video.

Reasons for success included:

  • Higher spending on research and development: if investing in innovation is a high priority, the business will be in a strong position to adapt and grow with markets and trends
  • Higher capital expenditure: businesses that spend money on improving equipment will be well-placed to keep their operations efficient and control costs.
  • Lower dividends and share buy-backs: by taking less out of the business, the company can commit to long-term investment.
  • More long-term investment: thinking long-term gives companies more flexibility and makes them more sustainable.

Source: Thomson Reuters, Credit Suisse Research.

A Times reader comments that a family owned company where the manage the business for immediately available profit/income and – more importantly – long term provision of the same for themselves, their retirement and their children’s. Contrast that with overpaid employed management, focused on short term profit and massive bonuses with no long-term responsibility whatever….

 

 

 

o

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: