Family businesses are a vital part of the UK economy, bringing in a quarter of the UK’s annual GDP and providing 9.2 million jobs. But specialist business legal adviser MLP Solicitors says that many family-owned and managed businesses are not prepared for protecting the business in future generations.
It could be argued that the success behind many family businesses lies in the ethos and culture they have created. They attract customers because they are founded on the dynamics of love and respect.
But this sentiment often isn’t enough for the business to pass seamlessly from generation to generation. In the UK it is estimated that while there are around 1,000 family firms with more than 250 employees, most are sold long before they get anything close to that size of operation, often because there is not the experience within the family to take the business forward.
Tim Isherwood, managing director of succession planning company Steuer Gregsson says, ‘From our experience we know that one of the main concerns for family-run businesses is about the ability to pass it on to the next generation.
‘But in the same breath many owners of such firms will often admit to doing nothing about it, either because they don’t know how to approach the issue, or they simply haven’t thought about it.’
If you really want a succession to happen, there may be a need to compromise the family-run status of the company. For Grant Gordon, director general of the Institute for Family Businesses, the key to a smooth succession is to consider the management team as a whole and whether it needs to be supplemented with talent from outside the family.
‘We see more and more family businesses being managed by non-family members,’ says Gordon. ‘Family owners bring vision, purpose, a sense of commitment and strong values in terms of the way the founder operates. But if they are going to grow, they have to ask themselves, do we look outside the family?’
The hesitance of some family businesses to pass the torch needn’t be seen as the death knell of the family business. After all, it clearly doesn’t mean that the idea of starting a small venture with family members is an obsolete one – just that such businesses are perhaps more likely to function better when they are kept small.