“2017 was a very special year for family businesses in Malta,” explains Dr Joseph Gerada, Regulator at the Family Business Office. With the Family Business Act coming into force on 1st January, its objective was to “encourage the regulation of family businesses, their governance and the transfer of the family business from one generation to the next.”
Between 2017 and 2018, a total of 85 family businesses had registered, formally receiving recognition as family businesses under the Act, and by the end of 2019, another 50 had registered. As of today, more than 200 family businesses are registered with the Family Business Office in Malta. This year marks the office’s fourth anniversary, and the second for its Regulator.
“Back in 2017, my predecessor was tasked with putting together a pool of incentives and support measures addressing areas where family businesses needed most assistance. The incentives are aimed at addressing financial support requirements, education and training, and succession planning, among others,” Dr Gerada reveals, adding that most of the incentives set out at that time expired at the end of 2020. While those which proved to be most beneficial were extended and strengthened, several new incentives were also launched to better address the needs of family businesses.
“Due to COVID-19, the past year has not been easy for anyone, more so for anyone who is in business. However, it has shown how resilient family businesses can be and what a determining factor for the success of our local economy they are,” the Regulator says, setting his sights on the coming year and beyond, where he will endeavour to ensure that the lessons learnt over the past year are not lost, and that the office continues to build on the successes achieved.
Detailing some of the tangible ways the Family Business Office has helped Malta’s family-run businesses over the years, Dr Gerada states that since the inception of the Act, over 120 people have transferred their business to family members across Malta and Gozo. “This means that since the Family Business Act and stamp duty exemption schemes were introduced, more than 1,120 persons transferred their business,” he says, emphasising that this is a significant figure of business transfers taking place over the span of just three years, which shows the positive effect that the introduction of the Act has had on family businesses and the economy alike.
Apart from that, through fiscal incentives, governance incentives and tax credits supported by Malta Enterprise alone, family businesses on the island have benefited from over €1.4 million over 2019. Furthermore, thanks to the stamp duty exemption schemes offered to family businesses by the Ministry for Finance, family businesses registered savings on taxes of more than €23 million, Dr Gerada details, quoting figures from the last Budget speech.
“This means that €23 million were left in the pockets of family businesses, thus giving them the possibility to further invest and grow their enterprise,” he outlines, adding that simultaneously, over €1.5 million in stamp duty have been received by the Ministry for Finance in taxes, which further add to economic growth. And, by extending this measure resulting in savings on taxes for family businesses to the end of 2021, Government will be investing a further €7.5 million in family businesses.
Of course, COVID-19 has had profound effects on businesses across industries, including those run by families. Dr Gerada says that family-run enterprises also face unique challenges, particularly when it comes to making tough decisions in difficult times. “Since family businesses involve the participation of family members, the survival of the family is often closely associated with the survival of the business since, if the business fails, the family will lose its main source of income. This would have far-reaching effects on the family, including on its pride and reputation within the business world,” he explains.
The Regulator goes on to say that even those which were well organised and prepared for scenarios of significant changes in the market were not spared the effects of the pandemic. “During the worst months of 2020, we saw examples of businesses with revenues dropping by 50 per cent, and in some cases even by 90 per cent. No one builds a plan envisaging such an extensive drop in revenue overnight,” he laments.
However, Dr Gerada believes that Malta’s family-run businesses have shown that they are well-positioned to survive such a shock. “I can gladly say that the Family Business Office has had no de-registrations due to business closure since the COVID-19 pandemic hit our islands. This in itself is very encouraging and is a sign that our family businesses are resilient and prepared to withstand the tests and obstacles faced during such a crisis,” he says.
Describing how the pandemic affected the way in which family-run enterprises do business locally, the Regulator affirms that 2020 saw many such businesses realise the importance of innovation and digital transformation – that is, having an online presence, embracing ecommerce to gain access to a larger, global market, as well as the importance of re-skilling and creating alternative revenue streams through the use of modern technologies.
More than ever, he says, during difficult times, it is important to think outside the box and to look at ways of adapting your business model in order for it to survive and deal with ever-changing circumstances and demands. “Through various support measures, including the Investment Aid for COVID Products and the Business Re-engineering Consultancy incentives administered by Malta Enterprise, as well as the Business Advisory incentive offered to our registered family businesses, local enterprises received the help and guidance they required to take the right decisions for their business, to adapt and survive,” Dr Gerada continues.
“We have seen clothing companies switching to the production of masks and other protective clothing, chemical manufacturing companies producing sanitizing products, taxi companies switching to delivery services, and restaurants and retail outlets introducing ecommerce sites so that they would be able to maintain a minimum level of sales and their businesses and workforce going.
On the more creative side, we have seen printing companies switching to 3D printing and making face shields. At least one such company also managed to export its product during these difficult times, thus entering the export market,” the Regulator reveals, giving examples of innovative re-engineering efforts.
As for how the Family Business Office can assist in this drive moving forward, Dr Gerada says that while many have realised the importance of digitising processes and the potential of the internet, Maltese enterprises are at a disadvantage when it comes to competing with other European businesses due to Malta’s insularity, the reliance on limited connectivity, including internet connectivity, and higher transportation costs.
To tackle this, he says, “Government needs to explore ways of building a case so that Malta’s insularity is given further recognition by the European Union, which should in turn result in further allowances for economic assistance and subsidies for local businesses, so that they can truly be on a level playing field with companies in mainland Europe.”
Another area where Dr Gerada believes Malta can invest more in relation to family business is training, education and re-skilling. “We are currently working very closely with Malta Enterprise on the development of training specifically intended to address needs which are intrinsic to family businesses,” he says, highlighting that, apart from the importance of receiving training in areas which will help business growth, “we also need to train our family businesses to think outside the box and explore new revenue streams so that they spread their risk further and are better prepared for rainy days.”
Finally, the Regulator also feels more can be done when it comes to succession planning. To this end, the Office has introduced a new incentive providing financial support for advisory and mediation services within the ambit of succession planning. Here, Dr Gerada highlights the recent launch of the Family Business Grant, with the support of Malta Enterprise, which aims to provide financial support to those who engage consultants to help them develop a succession plan for their family business.
“The Family Businesses Grant is intended to support family businesses address transitionary issues by facilitating access to advisory and mediation services,” he says, explaining that the maximum grant that can be awarded is capped at €15,000 per business in any rolling three-year period. “Any costs incurred before the submission of application will not be considered eligible, and therefore family businesses would need to submit the request for the assistance prior to acquiring the services of the consultant or service provider by contacting the Family Business Office to request authorisation for the services to be acquired,” he continues, advising that applications for this grant are currently being accepted and may be submitted until 30th November 2023.
Moving forward, the Regulator believes that the pandemic has taught those in business a number of lessons, and family businesses are no exception. Listing the crucial lessons learnt, he emphasises “the importance of planning ahead and being prepared for rainy days, thinking out of the box and being able to take critical actions to help the business get through difficult times.”
As for specific takeaways for family businesses, Dr Gerada maintains that the COVID-19 crisis and its aftermath may be a good opportunity to get family members more involved in the business. “Times such as these tend to provide a fertile ground for bringing family members into discussions in which they might otherwise not have been asked to participate. These members can provide the creativity and ideas required to overcome some of the obstacles that the business is facing,” he attests, noting that the new generation often tends to come up with ideas which are in line with the developments the world is currently experiencing.
“This is an opportunity to bring the next generation into the conversation, so that they can learn from the founders and the previous generations, whilst giving their input and bringing in new ideas. The new generation can help the family business focus on innovation,” he continues.
Meanwhile, the Regulator says, if family businesses have something they value in their business beyond financial results, it is probably the impact on the community. “Through innovation, they can perhaps create something that motivates and brings people together, or perhaps provide a useful product which they can produce by making some changes to their current production line,” he suggests, acknowledging that this may require re-training of employees or re-skilling, but would ultimately provide the alternative revenue streams which the business requires to survive during times of difficulty.
“If you are producing clothing which is currently in low demand, switch to something else – the production of face masks for example, for which there is currently a high demand. The opportunities are there, we just need to look for them and be willing to adapt our business accordingly,” he concludes.
This interview was first carried in the first ever edition of Business Now magazine, the sister brand to BusinessNow.mt
Joseph Gerada/ Daryl Cauchi
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