Introduction
Regional family businesses often face unique and complex challenges during periods of growth (organic or inorganic) or change, which may require reorganisation. The complexity of managing diverse investments or businesses across various regions and markets often presents significant challenges. Without proper and comprehensive understanding of these challenges, many regional family businesses struggle to implement changes effectively, leading to inefficiencies, missed opportunities, and long-term instability.
In this article, we present a case study of a regional family business that sought our help to guide its management team (“management”) through the needed reorganisation process. Below, we outline how we assisted management in identifying key operational and financial challenges, evaluating factors to streamline business operations, strengthening regulatory compliance (including tax), and improving financial reporting to facilitate transition to the next phase of strategic growth.
The Case Study
The family business operates as a corporatised group (“the Group”) that manages a diverse regional infrastructure development portfolio. Despite its good standing in the market, the Group faced several operational and financial challenges that hindered stakeholders’ desire to transform over time through a planned diversification to capitalise on new investment opportunities.
The key issues we helped management identify, along with the value we added to the reorganisation process, are summarised in the table below.
|
No. |
Issue Identified |
Summary of Actions and Outcome |
|---|---|---|
|
1. |
Lack of clarity on overall business performance and underlying causes of operational and financial issues |
Management lacked a clear understanding of its overall performance and the reasons behind key operational inefficiencies. A review of the Group's operational and financial records revealed significant issues in investment recording/valuation and earnings reporting. We helped identify the root causes of these issues and suggested operational and reporting changes to enhance periodic performance tracking. Management gradually received simple but more up-to-date information, enabling more informed decision-making to eradicate some of the fundamental issues. |
|
2. |
Non-compliance liabilities |
The Group did not incorporate key criteria in its investment decision-making and management. One of the pitfalls was the inability to comprehend and address tax implications in cross-border transactions, exposing it to significant risks. By collaborating with BDO’s international tax teams, specific action plans were developed to address the non-compliance and minimise financial exposures. Safeguards were also put in place to ensure compliance with local and international regulations, enhancing the Group’s ability to effectively manage cross-border transactions. |
|
3. |
Absence of Standard Operating Procedures (SOPs) |
The lack of SOPs across the Group’s business units led to operational inefficiencies and administrative challenges. We assisted management with implementation of a suitable set of group-level SOPs which could be quickly rolled out to the sub-units. We also helped the sub-units adapt these SOPs to streamline processes to optimise resource management. This led to improved efficiency and better resource management, resulting in operational cost savings. |
|
4. |
Inconsistent accounting |
The use of different accounting methods across the sub-units (or ‘subsidiaries’) resulted in inaccurate and non-comparable financial data. We helped management standardise accounting practices across the Group to ensure consistency in financial reporting. One of these is in alignment of investment cost and gain/loss recognition. The other is in intercompany transaction recording and reconciliation which is critical in preventing financial leakages. |
Conclusion
This case study highlights the difficulties that the management of a regional family business can unwittingly encounter if proper business management methodologies and processes are not implemented at inception. Subsequent discovery of the underlying problems can uncover mistakes that may be costly—both in terms of non-compliance penalties and losses due to financial discrepancies. Reorganising a family business under such circumstances will present a multifaceted challenge that demands knowledge and experience in operational reorganisation, business process reengineering, and revamping of accounting practices and platforms to restore effective business and financial reporting. Integrating technology to enhance compliance and efficiency becomes a must.
If these challenges sound familiar, or if your family business is facing similar issues, do get in touch with us today to explore possibilities for how we can help.