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  • Key findings

    Key findings were around:

    Defining characteristics of private groups

    Characteristics that can be used to describe most private groups, and that were seen to clearly differentiate them from publicly listed companies, were:

    • owner capability and expertise
    • decision-making style
    • staff commitment
    • financing
    • resources
    • privacy.

    Natural groupings

    Two key characteristics that can be used to provide natural groupings of private groups were identified:

    • the extent of corporate structure within the organisation
    • family versus non-family businesses.
    Corporate structure

    While the extent of corporate structure is naturally a continuum, ranging from little corporate structure to highly organised corporate structure, for the purposes of categorisation private groups in this research could be divided into either low or high corporate structure.

    About two thirds of [entities belonging to] private groups in this sample had formal boards, and around one third [of private groups] had governance structures in place.

    Triggers for developing more formalised processes, including use of external board members or advisors, were:

    • recognition that some key skills were lacking in the organisation
    • a desire to have an independent person review key decisions before committing to them
    • a perceived need to have disciplined strategic decision-making processes and formal developed systems and processes embedded within the culture of the business in order to continue to grow
    • growth, particularly when the business reached a turnover size that ASIC required it to be audited (although the audit requirement did not act as a trigger for all)
    • a need to have documented procedures and processes in order to tender for specific types of contracts with large corporates and government bodies
    • a plan to sell the business in the future and a recognition that good corporate governance would be necessary to expedite any such sale
    • significant problems within the business or a need for significant amounts of finance where the business’s bankers required regular audits.
    Family businesses

    The defining characteristics of family businesses were generally multiple family members worked within the business, and family members from two or more generations worked within the business.

    While some family businesses were in transition towards non-family businesses, the majority were committed to family ownership. Characteristics of these committed family businesses tended to be:

    • businesses often long established
    • owners have long history with and knowledge of the business
    • close knit workplace
    • strong emotional attachment to the business
    • decision making was often very informal.

    Global businesses

    The defining characteristics of global businesses were businesses that exported a substantial quantity of goods overseas, and/or businesses that had a substantial office or offices overseas. A few had started joint ventures overseas as a way of developing a presence in overseas markets. Reasons for developing a global presence included:

    • to provide opportunities for further growth, where the Australian market was seen to be too small, shrinking or saturated
    • to diversify and extend their customer base
    • to provide access to better information technology, processes or products (although this was not always achieved)
    • overseas offices in Asia could perform back-office functions for the Australian business at a lower cost.

    Rapidly growing businesses

    Businesses did not typically grow in a linear fashion, but rather by fits and starts. Rapid growth was most often associated with established businesses where they changed strategic direction or implemented some major new product or service, rather than with new businesses.

    Catalysts for rapid growth included:

    • expansion into other states, other countries, and/or new product/service lines
    • major strategic decisions, resulting in a change in direction of the business, usually instigated by a new owner, partner or occasionally a senior manager
    • access to or development of innovation providing a significant advantage and differentiation in the market
    • acquisition of major contract(s)
    • acquisition of other businesses
    • strategic partnerships and joint ventures with other, often much larger businesses
    • a few acknowledged that their growth had been largely a matter of luck – being in the right place at the right time.

    Key success factors for private groups

    Most private groups in this research represented successful businesses. A variety of factors that helped private groups succeed in their market were identified. Most of these factors were related to the private group associated characteristics of the businesses:

    • owner skills and expertise
    • quality of long term staff
    • clear market differentiation
    • provision of a superior product/service
    • flat organisation structure, leading to flexibility and speed in decision making.

    Key factors hindering success

    Notwithstanding their overall success, some factors that hindered growth were identified, as follows:

    • owner characteristics, where the owner would not relinquish any control, and/or did not recognise their limitations
    • limited resources
    • cash flow and debt management
    • difficulty in attracting and retaining appropriate staff
    • changing procurement practices amongst clients, leading to more protracted and bureaucratic processes
    • logistics issues in dealing with suppliers
    • competitor activity.

    Financial management

    The way in which private groups managed their cash flow and finance was seen by most as a key risk management strategy. There were three key elements relevant here:

    • financing their business where possible through cash flow or retained profits, in order to control debt levels
    • managing clients’ defaults on payments
    • those who were importing or exporting large quantities of goods potentially faced substantial exposure to foreign exchange movements. While they could not fully protect themselves, these businesses did what they could to minimise this risk.

    Notwithstanding the frequently expressed desire to avoid debt where possible, finance was necessary for a wide range of reasons. A variety of financing solutions were used across the sample.

    The majority of respondents seemed fairly comfortable with the way finance was managed in their business and with the level of debt that they had.

    Market, economic and regulatory issues

    Private groups faced a range of market, economic and regulatory issues in their day-to-day operations. Whilst these issues could have a substantial effect on the business, in most cases they were seen as issues that all their competitors had to contend with and, as such, did not offer any particular advantage or disadvantage relative to competitors.

    The key point of difference was that larger competitors were seen to have more resources available to deal with some of these issues, particularly regulatory issues.

    Future aspirations

    Across the sample there was significant disparity in future aspirations; from those who were on a significant growth trajectory to those who were comfortable with the size they were and had no immediate plans to grow or change their business.

    Most businesses that were aiming to grow substantially were doing so by expanding their market in their core business(es), diversifying into new markets with new product/service offerings, or diversifying into new geographic areas.

    Attitudes towards the ATO

    We [ChantLink interviewers] did encounter some negativity towards the ATO in the broader private groups community while recruiting respondents to take part in this research. It was evident that there was some unease about privacy issues and a reticence about revealing information to the ATO.

    However, overall, those who participated in this research tended to be neutral to positive towards the ATO. Indeed, some were extremely positive, based on experiences they had in dealing with the ATO. It may therefore be that the research sample represented a group that is more positive towards the ATO than members of the private group community overall.

    Dealing with the ATO

    The two key requirements that private groups had of the ATO were as follows.

    Flexibility

    Across the sample, individual businesses faced specific situations that could cause them problems. While the cause of these problems varied widely, respondents wanted their individual situations taken into account in addressing their situation; that is, what they wanted was flexibility.

    Ability to contact

    Private groups tended to be very private, and generally did not want a lot of contact with the ATO. However, when as issue arises they wanted to be able to contact someone who they felt confident would have some knowledge of their business and of the situation facing them.

      Last modified: 19 Dec 2018QC 57678