According to the Institute for Family Business, two thirds of UK businesses are family-owned, meaning that a total of 4.7 million companies (170,000 of which are medium to large) have faced the challenges of running a family business.
Over a quarter of the UK’s GDP is generated through family businesses and in 2015 over £133bn was paid in tax from these companies, making up 20% of the government’s revenue. These firms employ over 12.2 million people and make up 47% of the private sector.
Throughout 2018, it is estimated that 100,000 family businesses will start actively transferring the ownership of the company to another family member, showing the importance of succession planning.
Some businesses have a clearly set up a succession plan in order to avoid any unwanted challenges when an older generation decides to relinquish power. However, some companies underestimate the work that goes into succession planning.
Fiona Graham, Public Affairs and Policy Director at the Institute for Family Business explains: “What happens to the business after they retire is something all business owners have to think about.
“However, too often they put off doing so until the last minute. Questions like ‘Do my children want to carry on the business?’, ‘Who should run it?’, ‘What will happen to the ownership when I retire? What will I do after I retire?’ can be sensitive and emotional.
“But the truth is that preparing for succession and addressing some of the big questions early improves your chances of making it a success.”
Some family businesses don’t have a succession plan and are happy for others to take over the reins once they move on and are satisfied that family members could be involved with the company in other capacities.
Giles English, who runs luxury watch brand Bremont with his brother and sister-in-law, explains: “I would be very happy if my daughters or my brother’s children want to come into the business, and I think they would do a very good job with that.
“However, I am making no assumptions that it will happen. We are in a lovely industry, but I am comfortable that there is no concrete succession plan.”
Due to the wide range of businesses – and the various plans around succession – there are many challenges that can be unique to family businesses.
It is clear that succession planning is key, whether this is implemented in advance or confirmed at a later date.
Fiona explains: “As different as they are, family businesses share unique challenges. Because they think long term, families naturally have to address questions of governance, succession planning and next generation engagement, to name just a few.
“Addressing these early on and planning ahead is very important for lasting success. Being a family member and a business owner at the same time isn’t easy. If one also works in the business on a daily basis, this adds yet another layer of challenges.
“Being aware of the multiple hats owners have to wear at any point in time and when to wear them is an important step to overcoming family business challenges.”
Growth and success
Growth and success are not easy to come by in any business and these are only achieved through hard work and by overcoming challenges and setbacks.
Giles explains how being in a family-run business can both help and hinder the company from an employment perspective.
“The main challenge of running a family business is that you do not always target things head on. With family members there is always going to be elements of nepotism. In terms of hiring, you have to be clear that that is the case.
“However, I think that all of the challenges are insignificant and I work incredibly well with my brother and his wife within the business. If family members want to come into the business then they have to really want to and they need to bring something with them.
“Putting your trust in your family is a wonderful thing and my brother is very talented and makes my job a lot easier.”
These challenges are unique to family-run businesses, but they can give an advantage over the competition
Employing a family member into a pre-existing team could create division amongst the workforce. However, it can also galvanise employees to achieve success.
Fiona explains: “Unlike other types of businesses, joining a family company often means you are becoming part of a wider family, where certain values, purposes and commitments are shared by everyone.
“This is unique to family firms. It also means that to work effectively within a family business, one must learn about the family values and be aligned with the ethos of the company.”
As long as a clear structure and ethos is made, a family business will stand out within their sector and have a high level of commitment and security.
Giles continues: “Businesses that are family-owned often have the right management and shareholders in place, and have a sense of stability and structure.”
Why are they successful and why are numbers growing?
Currently, two thirds of the businesses are classed as family firms, and according to the IFB that number is on the rise.
Fiona summarises: “Many family businesses have been operating for hundreds of years. Their longevity and enduring success are testament to their innovative and long term outlook.
“The increasing number of family businesses in the UK demonstrates the continued relevance of the family business model to business owners, families and consumers alike. Family businesses have strong values, which shape the way they operate.
“With their commitment to their employees and the communities they work in, family firms create a greater sense of loyalty and a legacy, often lasting many generations.”