Canadian family enterprises urged to embrace innovation and diversification

TORONTO, ON, November 13, 2007

At a time when foreign ownership of the nation’s businesses is a growing issue, many Canadians would be surprised to learn that the vast majority of businesses in the country remain privately-owned family enterprises. The most comprehensive report to date to focus exclusively on mid-market Canadian family enterprises, The Grant Thornton Family Enterprise Insights 2007 report found that mid-sized family enterprises remain fundamentally sound. The report is based on findings from The 2007 Grant Thornton Family Enterprise Survey, whereby business owners and senior executives were interviewed at 201 mid-sized ($15M-$500M) private family enterprises.

Family enterprises represent a major force in Canada’s business landscape. In their 1998 article, “Securing the Future of the Family Enterprise: A Model of Offspring Intentions to Join the Business,” appearing in Entrepreneurship Theory and Practice, Stavrou and Swiercz present data that family owned enterprises represent 80% of the nation’s businesses, making their influence on the economy indisputable. As these businesses continue to thrive, so do the employment opportunities for a vast number of Canadian workers.

“Mid-sized family enterprises in Canada are optimistic about their prospects for the coming fiscal year,” said Jim Mills, a Vancouver-based partner with Grant Thornton and the firm’s national leader of family enterprise. “Sixty-seven percent of those we surveyed feel positive about the overall national economic climate, and 64% expect revenues to climb or remain constant. Eighty-seven percent expect profitability to remain constant or increase, and 92% say they will add to or maintain their current workforce.”

Despite the signs of strength, optimism and health, the report suggests that mid-sized family enterprises in Canada lag behind other sectors in diversification of their client bases and in investing in new technology, and in innovations in operations and management.

Half of the surveyed companies intend to increase their investment in innovation next year. Among the family enterprises that own their buildings, six-in-ten do not plan on changing their level of investment in new buildings, and half of those owning plants and/or machinery have no plans to increase investment in either.

Mid-sized family enterprises excel at building strong locally based clients that can result in the risk of over reliance on a few key relationships. An insight from the Grant Thornton report is that mid-sized family enterprises need to embrace the strategy of client diversification complementing locally based clients with expansion into new market areas for continued success and reduced risk. “It’s not a simple task to replace a key client, but strategic thinking and planning can help a business work through the crisis, or prevent it from happening in the first place,” said Larry Munroe, a Fredericton-based Grant Thornton partner who is part of the family enterprise leadership team.

The Grant Thornton Family Enterprise Insights 2007 report also found that long-term planning is required to deal with the potential sudden loss of customers, key suppliers and personnel.

Family enterprises are not immune to the staff pressures faced by Canadian businesses at large. Half of the respondents selected “lack of skilled workforce” as a constraint to their business growth, more than for any other issue.

“We are pleased to report that our survey also determined that mid-sized family enterprises have taken some necessary steps in succession planning, which is a key concern among Canadian businesses at large,” Mr. Mills said.  “Two-thirds of the respondents in our survey have a formalized, documented succession plan in the legal and financial sense as compared to about half of mid-sized non-family held enterprises as a whole.” 

2007 Grant Thornton Family Enterprise Survey

The proprietary research contained in the 2007 Grant Thornton Family Enterprise Survey is the result of 472 telephone interviews that were conducted with business owners and senior executives of mid-sized businesses across Canada, including 201 private family enterprises. Respondents were classified as family enterprises if any ONE of the following conditions were true:

Other members of the respondent’s family or the owner’s family are involved in the business 

• as employees (88%)
• as part of the management team (71%)
• as directors (64%)
• as shareholders (64%)

For the purposes of this survey, mid-sized was defined as businesses with annual revenues in the range of $15M to $500M. Data was weighted to reflect the regional and industrial distribution of mid-sized business establishments based on information provided by Statistics Canada.  

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About Grant Thornton in Canada

Grant Thornton LLP is a leading Canadian accounting and business advisory firm providing tax, specialist advisory, audit and assurance services to private and public mid-sized organizations. Together with the Quebec firm Raymond Chabot Grant Thornton, Grant Thornton has more than 3,100 people in offices across Canada. Grant Thornton LLP is a Canadian member of Grant Thornton International Ltd, whose member firms have over 585 offices worldwide and are represented in over 100 countries.