“Family businesses represent 75 per cent of Malta’s businesses, making them responsible for a good chunk of the nation’s GDP,” says Dr Joseph Gerada, regulator at the Family Business Office (FBO). “But being a family business involves unique complexities such as succession issues, financial hurdles and governance gaps that can hinder growth and sustainability.”
Established in 2017, the FBO’s objective is to ensure the long-term endurance of these businesses that are the nation’s economic lifeblood. Following the birth of the Family Business Act (a legislative framework officially defining family businesses), the government organisation has been providing tailored financial incentives to help family businesses survive and moreover, thrive.
“The solutions we devised were not created out of thin air but by thoroughly examining the areas where this sector most requires assistance,” Dr Gerada clarifies. Succession was one of several significant hurdles. “Prior to the Family Business Act’s implementation, many firms were struggling to pass the business on to the next generation due to heavy financial burdens making it difficult for prospective heirs to take over.”
The resulting 2018 introduction of pioneering fiscal benefits has minimised this particular barrier to generational transition. “The business transfer stamp duty reduction from 5 to 1.5 percent was a game-changer without which many businesses simply could not have continued,” the regulator continues. Since 2018, this incentive has helped family businesses “keep €45 million in their pockets” (saving €6 million in 2023 alone) and eased the transfer of ownership to the next generation. Notably, it has also enabled many businesses to invest their savings back into the business and achieve further growth. “This speaks to the success of this initiative,” Dr Gerada affirms.
Generational disinterest is another barrier to business survival. Prospective successors may question the logic of inheriting business ownership responsibilities when alternative career options in high-paying sectors can seem more attractive. Younger employees increasingly seek high salaries and perks that traditional businesses sometimes struggle to match, Dr Gerada admits. “Early exposure to the family business is essential yet this is rare. Businesses need to involve younger family members sooner to nurture interest and retain talent,” FBO’s head advises. “Waiting too long to encourage this runs the risk of reducing their appetite for the business.”
“Launching next-gen events here would also be an ideal platform to promote the benefits of business participation to potential successors,” Dr Gerada suggests. International organisations including Family Business Network, chambers of commerce, universities and business institutes have a decades-long history of running these gatherings. Aimed at supporting succession and sustaining the family enterprise landscape, next-gen conferences and forums provide invaluable networking and educational opportunities for the family business leaders of the future.
Micro Invest is another of FBO’s tools in its mission to alleviate the financial burden of running a family business. The tax credit scheme aids business growth and modernisation through higher tax credit caps for specific eligible investments and expenses. The €70,000 cap for family businesses (as opposed to €50,000 for standard enterprises) is also available to non-family businesses that are predominantly female-led or based in Gozo.
Take-up numbers for Micro Invest “show a steady exponential increase proving there is a real need,” Dr Gerada says. While 2018 saw 34 disbursements totalling €770,000 and 2022 saw 68 beneficiaries receiving a total of €1.1 million, this had risen by 2023 to 86 family businesses benefiting from €1.8 million in total.
Conflict is yet another major threat to family business continuity raised by Dr Gerada. A traditional reluctance to seek external assistance frequently prevents family members from addressing disputes effectively. However, prolonged problems can hinder decision-making, delay product/service roll-outs and erode employee trust, weakening commercial competitiveness – and ultimately the business’s very viability. “Businesses often end up becoming stagnant and eventually dying simply because families didn’t open up to outsiders regarding critical matters endangering succession.”
To address this, the FBO introduced the Family Business Grant to facilitate access to consultancy services and help families eliminate operational roadblocks. Earlier government initiatives included the publication of an approved service provider list and a 2018 mediation incentive but “received limited response due to a systemic preference for only confiding in trusted advisors familiar with their internal dynamics,” Dr Gerada reveals. A rethink was therefore needed, he shares candidly.
The new “hybrid incentive” has attracted greater interest for its more flexible, practical structure allowing families to appoint a consultancy or mediator of their choice. Dr Gerada elaborates, “we understand that an individual known to the family can be the best placed to bring all parties to the table to iron out problems that would otherwise remain ignored, causing damage.” While the primary mediator must hold a professional warrant in their chosen field, the FBO does not require a particular type of warrant and even permits non-warranted individuals to accompany the lead mediator.
This brings up an associated topic. “As every family business has its own intricacies and characteristics, it’s difficult to assist them unless you fully understand what you’re dealing with,” Dr Gerada shares. To this end, the FBO has been working with the University of Malta and the Mediation Centre to address the local lack of “commercial mediators with specific expertise in handling the unique domain of family businesses”. The result is a certified training course to produce qualified family business mediators to fill this gap locally.
Dr Gerada briefly sheds light on a further compounding challenge to business survival: the reality of Malta’s employee market “which creates human resources and overall capacity-building issues for family businesses”.
Finally, turning to critical governance and strategic direction, the findings of the Malta Chamber’s 2024 Family Business survey generated food for thought. Only 35 per cent of companies were found to possess a documented succession plan with less than half actually implementing it. Meanwhile, just 33 per cent of respondents confirmed they have a five-year strategic plan “meaning the majority of family businesses are vulnerable to economic shifts and market changes”. Such statistics are corroborated by the fact that 86 per cent of family businesses admitted that day-to-day operations are their sole focus. “This confirms little or no room is left for strategic planning,” Dr Gerada points out.
The survey also discovered that less than one third of Malta’s family businesses have independent, non-family board members. “Keeping everything within the family prevents consideration of objective advice and leads to insular decision-making,” warns the FBO regulator. “Good governance is the foundation of any business. Incumbent business owners bear a responsibility to pass down improved, stronger legacies to their successors,” he adds.
So, what lies ahead for the Family Business Office? After an initial uphill climb to raise awareness of the organisation’s purpose, its head believes “things have now evolved to a point where family-owned and operated businesses are realising they differ from ‘standard’ commercial entities and therefore need specific targeted solutions.” Hence the FBO’s dedicated ongoing effort, adapting its schemes to consistently serve the needs of this sector.
“Ideally, I would like to foster a culture where Malta’s family businesses feel a sense of belonging to the wider international ecosystem. Through knowledge-sharing, networking, and peer learning avenues, we have the potential to inspire change locally. The goal is to encourage these businesses to take a step back, become more analytical and forward thinking.”
Dr Gerada concludes that a willingness to plan strategically, address challenges head-on and utilise FBO incentives is the way forward for the sustainable growth and long-term legacy building of Malta’s family businesses.
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