Business planning practices in family and nonfamily-owned businesses in the Cape Peninsula, South Africa

Eslyn Isaacs Family Business Workshop School of Public Health University of the Western Cape 25 November 2011

Structure of the Presentation

Introduction Research question Results Discussion Summary and Conclusion

Introduction

Total # of SMEs = +- 2.5 million Growing at a rate of 150 000 per annum; Contribution to GDP > 36%; Contribution to employment > 54%; 50-70% of SMEs in SA are family-0wned. Limited research in SA on Family Business. Focus on Succession planning.

Research question

Are business planning practices different in familyand nonfamily-owned businesses.

Quantitative research project:

214 SMEs:
110 FBs + 104 NFBs Cape Peninsula

Results: Profiling the businesses

Number of businesses:
110 family-owned 104 nonfamily-owned.

Average age:
12.94 family-owned 12.78 nonfamily-owned Employment:
2009: 11.70 - family-owned; 10.26 nonfamily-owned 2010: 12.00 - family-owned; 10.56 nonfamilyowned

Sales
2009: R4.7m - family-owned; R3.6m nonfamilyowned 2010: R5.3m - family-owned; R3.5m nonfamily-

Profiling owners
Average age: 40 50 years in both clusters; Average number years employed prior to starting the business:
14.86 family-owned 14.40 nonfamily-owned

Entrepreneurs: 58 vs 47 FB and NFBs; Business owners: 52 vs 57 FB and NFBs; Highest qualification: Gravitate around Grade 12 Involvement in networking: very small percentage. Influenced to start the business: family and friends.

Planning practices planning sophistication

Planning practices planning responsibility

Planning practices purpose with the plan

Planning and financing

Low and moderate level planning finance comes from family members; High level planning financing comes from Commercial banks.

Financing not provided:

Insufficient collateral; Poor credit rating.

Planning after start-up

Table 3: Business planning focus Start-up focus Current focus Family Nonfamily Family Nonfamily Marketing Financial Management Operations Objectives Vision statement Strategies Administration Human Resource Management Legal requirements Mission statement 0.76 0.71 0.65 0.54 0.53 0.53 0.49 0.43 0.42 0.33 0.81 0.75 0.62 0.63 0.56 0.57 0.59 0.53 0.49 0.49 0.93 0.79 0.69 0.61 0.54 0.57 0.53 0.48 0.51 0.29 0.85 0.76 0.63 0.53 0.47 0.56 0.57 0.46 0.42 0.33

Planning and Performance (sales growth)

High level of satisfaction with sales growth: Low level planning:
45% (31) vs. 41% (22): FB/NFB

Moderate level planning:

50% (20) vs. 46% (13)

High level planning:

66% (59) vs. 51% (69)

Family and extended family employment (Nepotism???)

64 of the FBs employ extended family members:
28 = 1 32 = 2 3=3 1=4
NB: employ family members more committed.

1 of the NFBs employ members from the extended family:

1=1

Succession planning
73% of FBs vs 24% in NFBs
16% - sons 5% - daughters (primarily mothers being the owners) 8% - other members, i.e. brothers, etc.

100% of NFBs will sell when reaching retirement age.

Conclusion
In family and nonfamily-owned businesses planning is done; Owners are primarily responsible for preparing business plans; Business plans are primarily used to obtain finance; A small percentage of owners continue with planning after the first goal was achieved; Continued planning does contribute to satisfaction with sales growth.

Thank you for your attention

Questions and answers