5. Considerations of global mobility and residence
With employees and businesses demonstrating the effectiveness of remote working, COVID-19 has shone a spotlight on the mobility and location of global workforces.
When lockdown began there was an initial flurry of family business owners considering whether to stay residing in the country in which their company is based or quickly relocate abroad to second homes before borders closed. For those deciding to work remotely from abroad, this raised a multitude of questions around tax and whether their company would be liable to pay taxes under various jurisdictions.
While some tax authorities have issued temporary relaxation of rules around residency and permanent establishment to facilitate those remotely working from other jurisdictions, it is still unclear whether longer-term decisions will be contemplated which would safeguard family business leaders working on a remote basis from overseas.
The EY Tax COVID-19 Global Mobility Response Tracker provides regular updates on how governments around the world are changing their payroll, tax and social security laws to address the mobility implications of their response to the pandemic.
6. Navigating liquidity and financing
Responsible for a major part of worldwide economic growth, family businesses are of increasing interest to investors. However, despite this strong interest, financing growth is a recurring challenge for family businesses with owners often very reluctant to offer equity in the capital markets.
According to the EY 2018 Family Business report, just 38% of the world’s largest family-run businesses have either used or are currently using private equity as a source of capital.
Like all businesses, family businesses must grow in order to survive and thrive, however, we often find that they tend to shy away from diluting equity holdings in their companies, and prefer to retain as much ownership within the family as possible.
As the business climate continues to evolve, it is essential that owners place a key focus on liquidity and robust financing if they are to weather the tough economic conditions that lie ahead.
Family businesses are continuing to look closely at the following:
- Tax cost recovery strategies, activate tax refunds, carryforwards, etc.
- Revised sourcing strategies and agreements
- Supplier contract and credit terms renegotiations
- Communications to gain stakeholder confidence and support credit and contract renegotiation
Thoughts for the future
Whilst family businesses are always evolving and adapting, crises often prompt reflection. Leaders should use these situations to consider what’s next for the business and, indeed, the family.
Long-term planning is key to success. With the business climate continuously in a state of change, family business leaders can benefit from considering what they want to achieve personally, and for the business, and whether their current strategy will facilitate these objectives.
Owners are faced with a multitude of challenges as they try to combine growth acceleration with building the family legacy. Planning for the future can be daunting without detailed insights into what other family businesses are doing and how they are adapting to market disruption. Stopping to take stock of these priority areas and assess whether more work needs to be done to develop a clear way forward for each strategic pillar is the first step towards ensuring a family business is robust, resilient and ready to navigate through all market conditions.
Summary
In this article, Tom Evennett and Alexander Hayward discuss how leaders should use these disruptive times to consider what’s next for the business and indeed, the family as long-term planning is key to success.