The corona pandemic (with associated lockdowns), the war in Ukraine, and a shortage of raw materials and personnel: In recent years, entrepreneurs have often been confronted with external circumstances over which they have little or no influence. The same is true of the rapidly rising inflation. In the last ten months, inflation has risen from 1.4% in July 2021 to as much as 9.6% in April 2022 – an inflation increase that has not taken place in the Netherlands since 1977. How do Dutch family businesses handle this extremely high and rapidly rising inflation ? Van Lanschot Kempen and Nyenrode Business University investigated it.
A total of 107 family businesses participated in the survey. 81% of the respondents are directors of the family business, while 91% of the respondents own the business. The participating companies have a rich history: 17% of the companies are at least 100 years old and 42% are between 50 and 100 years old. In addition, 36% of companies have a maximum of 50 employees, 27% between 50 and 100 and 17% have more than 250 employees. The survey was conducted from 3 to 20 May 2022.
No fewer than 66% of directors say they are seriously concerned about inflation; only 10% say they are not at all worried about the impact of inflation on their business. 35% of respondents believe that the high prices of raw materials and energy are disruptive to their business model, and 5% even fear for the continuity of their business in the long run. In addition, three-quarters of entrepreneurs expect the Netherlands to end up in a wage-price spiral in the coming period.
To reduce the negative consequences of high inflation, 89% of family businesses expect price increases. Most of them feel compelled to do so because it would not be possible to save in the production process (e.g. energy, raw materials or wages). Although most respondents are relatively positive about how their business is coping with the inflation wave, they are concerned about the consequences of the economy.
Marta Berent-Braun, professor of Family Business and Property Dynamics at Nyenrode Business University, explains that inflation among entrepreneurs raises concerns not only for the company but also for the Dutch economy and the consequences for their employees. “There is a threat of a wage-price spiral in which the directors of family businesses fear that wage costs will not normalize themselves in the long run.”
It is therefore believed that the government should intervene to lower the payroll tax, so that employees get more net profits and – as in the 1990s – to lower VAT to 17.5%. In addition, entrepreneurs believe that compensating for the lowest incomes, easing employee tax benefits and tax breaks on energy would be positive government measures.
Family businesses extra sensitive to inflation
To overcome the inflationary challenges, companies may choose to reduce their innovation investment or make adjustments to their financing structure. However, the survey shows that family businesses continue to focus on business continuity and long-term: The majority (66%) say they do not cut back on investment in innovation. Moreover, most entrepreneurs have not yet made any adjustments to their financing structure – only a small proportion repay extra debt, set interest rates or create extra credit.
Finally, the survey shows that 38% of directors in family businesses are concerned about the impact of inflation on their other assets (in addition to the business). The risk for family businesses is much higher because many owners have a large portion of their family capital in the business. For example, 22% of directors have looked for other investment or investment solutions to enjoy additional protection against inflation.
“Capital in companies is now being hit hard,” explains Mark Buitenhuis (Managing Director Clients Regions at Van Lanschot Kempen). According to the study, the company is also more sensitive to inflation than other assets, such as real estate and the equity portfolio. In addition, you can manage better with private capital. Here you can see the importance of good distribution. “