Leadership & Productivity

UK family businesses: What they are and how to run them

15 min read

10 December 2018

Reporter, Real Business

Family businesses are a little like aristocrats and their estates. Here's why.

Family businesses are a little like people. They come in all shapes and sizes.

They can be run by mothers and sons, fathers and daughters, and even between siblings.

But due to the emotional politics often involved in working with members of one’s family, you’d think that starting this sort of business wouldn’t be a popular option for UK entrepreneurs, but you would be wrong.

According to statistics provided by the UK Institute for Family Business, going into business with ‘the fam’ is incredibly popular in this country.

So popular in fact, that a whopping two-thirds of UK businesses are family owned. That’s 4.8 million businesses in total.

Family run businesses are not only numerous in number, but they also produce a lot of money for the British coffers. According to the IFB, family-run enterprises generate over a quarter of UK GDP. So you could say that family businesses are, by definition, impact businesses too. Let’s find out more about them.

Family businesses are the backbone of Britain

Back in 2016, family businesses paid out an estimated £149 billion in tax, which accounted for some 21% of government revenues. So whilst we’re always happy to mention that UK based SMEs form the backbone of our business economy, a significant portion of that cornerstone economy are family-run businesses as well.

According to IFB, family-run businesses employ an estimated 12.2 million people in the UK – which accounts for nearly half of those employed in the UK’s private sector.

So family businesses are numerous, make money, and employ many people in this country, so what’s not to love about them?

Check out these real-life family-run businesses that picked up the top prizes at this year’s Amazon Growing Business Awards:

These statistics may make you feel confident about starting a family-run business of your own. But understand what you’re getting into first.

In the rest of this article, we tell you how to start and run a successful family-run business, including the details you’ll need to know before starting it, such as facts about growth potential and succession planning if you already run a family business and want to pass it on to the next generation.

The statistics above and below come from an IFB report compiled between 2017-2018, the statistics are based on findings from 2016 as well as updates from this year.

What are family-run SMEs?

According to the Department for Business, Energy and Industrial Strategy, family-run SMEs count as businesses which are majority owned by one or more members of the same family.

A family-run SME employs up to 249 employees and is usually beholden to a single owner. However, family-run SMEs can also have multiple owners, which are still defined as family-owned businesses, but just ones that are owned by multiple members of the same family.

Let’s talk numbers

The total number of UK family businesses: Some 120,065 (4.8 million) UK businesses call themselves ‘family run or owned’ and this number accounts for over half of all businesses in the UK, (a whopping 87.6%).

Small-sized family businesses: According to the latest statistics from the IFB, there are 120,065 (59% of all businesses) calling themselves small family businesses in the UK. These sorts of family businesses are estimated to employ between 10 and 49 people and account for over 2.5% of the family business sector.

Medium-sized family businesses: Around 15,725 family businesses (47.2% of all businesses) called themselves medium sized in the UK.

“In total, that’s some 135,700 family run businesses calling themselves SMEs in the UK.”

Evidence of growth potential

41% of UK family SMEs increased their workforce in the past year, and in the coming years, 60% of them plan to invest in their workforce skills.

And the good news keeps on coming for family businesses in the UK, with an estimated 12.2 m people working in family firms, a statistic that’s up by 24% from  2010.

The common structure of family businesses

Multi-generational businesses account for 21% of family-run SMEs in the ‘family-run’ sector in the UK. These sorts of family-run businesses are also more likely to have a higher number of employees. But why is that?

Multi-generational businesses, or businesses that have seen successive generations run them, signify a long lifespan of business operation. This gives out the impression of continual business success, stability and good leadership.

According to the report, 38% of medium-sized family-run firms were in at least their second generation of family ownership, and 3% were in at least their fifth.

What are their common concerns?

According to the report, family-run businesses largely see regulations and market-related competition as the biggest hurdles to overcome. (44% and 48% respectively.)

Among the regulatory concerns family-run businesses commonly face, between 15-16% of them said that tax, sector-specific regulations, and health and safety issues were among their biggest worries.

They are also less likely to gain access to traditional forms of finance, says the report.

Around 10% of family-run businesses questioned in the report said they needed but hadn’t actively sought external financing. But why?

The businesses listed additional risk, potential cost and the time burden of applying for finance among the reasons why they didn’t apply for funding.

They also made an inference to the fact that they may be rejected by lenders because they are family businesses, showcasing a cultural prejudice against family businesses as ‘less-than-professional concerns’.

Of course this, by and large, isn’t true (just look at the contributions they make to the UK economy).

However, this sentiment reveals that there is an almost institutionally held view that family businesses are by nature irrational or difficult to deal with. It’s so pervasive that family-business owners themselves even believe it, hence why so many are unsure about whether they would be seen as eligible for funding.

Spotlight on Succession planning

The Godfather guide: What you need to know about running a family business

Succession planning is among the top concerns for family business leaders.

“Successful owners aim to pass on the business to the next generation in a healthier condition than when they inherited it”, this is the definition of what succession planning is in family businesses according to the IFB.

The idea of succession planning is that the current business owner or owners are merely custodians of the business, who are expected to hand it over to the next generation when the time comes.

“Stewardship embraces broader concepts like trustworthiness, honesty, a sense of responsibility and community.” – IFB

To engage in effective succession planning, family business owners must subscribe to the idea that the business is a shared asset to be used for the long-term benefit of the family and not some individual entity that can be owned by one person.

Become ‘a good planner’

Here is what ‘good stewardship’ and good ‘succession planning’ is, as defined by the IFB:

“Those who own and lead family businesses come back again during the different life cycle stages of their business to watch over two key elements: one is effective leadership, namely to create and embed an enduring vision and values to achieve alignment between family and the business. The second is establishing a sense of governance, succession and renewal across the generations.” – IFB

If you’re looking to pass on your business to the next generation, it means you want a vision for the long-term.

Choosing this option means that you don’t see your business as an individual entity, but an asset for the entire family to benefit from for successive generations. This means that you must think about 4 different types of capital that make up your business when planning your succession strategy, these include:

Family capital: This includes an attachment to the business going beyond you, and into the future, which goes beyond a mere financial relationship.

People capital: This includes your current workforce, and what your existing talent is going to do to help take your business forward without you as the current owner, and how they will support your board.

Financial capital: As your business is not an individual asset, but a family owned one, you have to be prudent and plan ahead to ensure it has the financial capacity and savings in place to go ahead without you, and for future generations.

Social capital: As your business is not defined by one CEO or owner, but many, and throughout successive generations, you must ensure you build long-term trust with suppliers, investors, employees and consumers around your family brand.

“It requires clarity of vision and purpose and a family-wide commitment to the idea that mutual family interests outweigh the ownership interests of individual family members” – IFB

Draw up a stewardship plan:

Think of it like a mission statement, which will contain the detailed rules about how you want your business to succeed you after you step down, these include:

  • Managing family and business assets
  • Dividend distributions
  • Personal financial planning
  • The mutual obligations of family members

Invest in the long-term

Don’t just think about short-term profitability.

As you’re preparing your business for long-term success, invest in things that will stimulate business growth in the long term like training, research, infrastructure, marketing and next-generation leadership development.

Here are some other points to think about when succession planning:

  • Capital investment as well as revenue growth
  • Succession planning as well as performance management
  • Family business reputation as well as results

Case study: Bettys & Taylors Group

Family members sit on the board of this SME including Chairman Lesley Wild (below right).

Bettys & Taylors is an independent Yorkshire family business owned by the descendants of Frederick Belmont, an entrepreneur who set up the first Bettys Café Tea Rooms in the town of Harrogate in 1919.

The business has been handed down through the family and, in the early 1960s, they bought Taylors, a family-run tea and coffee merchant, also based in Harrogate.

Today, the group shareholders are Frederick Belmont’s great-nephew, Jonathan Wild, his great-niece Liz Barnes, and eight other members of the family from the second, third and fourth generations.

The business is a textbook lesson in effective succession planning, as well as brand positivity and sustainability. The business has embedded itself in its local community, funding various programmes for children in the area.

Doing so has ensured that the family business is also a community business, that not only delivers societal impact as well as profits, but encourages the view that it’s a positive and people friendly brand, and most importantly, a family business that gives back.

Further afield, they are doing the same. Considering they are a major importer of tea, the company wants to give back to what they have taken from the environment, and since 1990 they have supported the planting of over 3 million trees around the world.

“We recognise that the long-term survival and prosperity of the business depends on sustainable relationships,”  – Lesley Wild, Bettys & Taylors

“These relationships embrace staff, customers, local and global supply chains, communities and the environment”, she continues.