Better policy-making can support better family businesses as the other pillar to Ireland’s economy, writes Con Casey of Smith & Williamson

The family business sector is often described as the ‘real backbone’ of our economy. And that’s true to a point. But in reality, our economy relies on two core and interdependent pillars rather than just one spine. Those pillars are the large multinational companies (MNCs) on the one side and the indigenous family businesses on the other side.

Economic policy over the last half a century has focused on Foreign Direct Investment with great success, and many family businesses are partners in that success as suppliers to the FDI companies here.

But keeping both pillars in balance is crucial to wider economic stability. And that means we also need better policy-making to support the family business sector which, with over 170,000 businesses, employs almost one million people. 

What does this sector need?

Family businesses are concerned about ownership. They have a proud heritage and culture within Irish life and communities which they want to maintain and build. These businesses provide valuable local employment opportunities, enhance the local supply chain and, in many cases, provide much needed sponsorship and support to community organisations.

According to the National Family Business Sentiment Report 2021, which Smith & Williamson recently conducted in partnership with the Family Business Network, ownership is at the top of the agenda for family businesses making plans for succession and the next generation.

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Most importantly, family-run firms require what all businesses need to grow: investment and jobs, plus maximum certainty of costs and of policy-making in a stable political landscape.

There is huge opportunity for Ireland if we make the right choices now. Ireland holds strong relationships with the EU, the UK and the US, which makes us perfectly placed to host new investment in trade, research, education and in our global relationships.

Despite widespread concerns around the taxation of multinationals, there has been no refocusing of policy around owner-managed family enterprises. This is evidenced in the absence of such specific measures for this crucial segment of the Irish economy in the recent Budget.

Family businesses, according to our Family Business Sentiment Report, are looking for specific measures around Capital Gains Tax and Capital Acquisition Taxes, in order to facilitate intergenerational business transfers. Family businesses face the prospect of generating a tax burden for those who are seeking to take over a business.

This often needs to be financed, reducing capital for investment, or it can become so onerous that the business needs to be sold. A gap remains that needs to be looked at. Family-owned business are not quoted on the stock exchange and, as history has shown, can weather economic storms and provide much needed ballast when economic shocks come.

The arbitrary age cutoff

There are some anachronistic measures in place, such as the cliff-edge of 66 for availing of retirement relief. We have one part of government policy appearing to push for later retirement, and yet we want to force a transfer of business at an arbitrary age without having regard to the particular circumstances that might give rise to specific succession challenges for some families. 

For families who own businesses, planning for intergenerational transfer, succession or even sale of the business should be considered years in advance of the event. Many of the reliefs that do exist need to be planned and executed over time to maximise their efficiency and effectiveness.

In the short term, some businesses may need to look at managing immediate cash flow issues as we emerge from the pandemic. This includes use of debt warehousing where appropriate.

From our perspective, government needs to foster family-owned businesses, help them scale and remain in family ownership as a balance to our reliance on FDI. Delivery of real policy changes to enable equitable and smooth inter-generational transfer will become even more important over time.

Other measures like mentoring and providing next-generation business owners with the necessary skills and supports are critical.

• Con Casey (pictured) is a partner with Smith & Williamson, specialising in advisory and corporate finance