Recent research from the US has found that having too many family members at the top of a business leads to bad decisions.
The report has however been met with strong criticism from UK business leaders, with Charlie Mullins, entrepreneur and founder of family business Pimlico Plumbers, which now generates a turnover in excess of £30 million, issuing a fierce response in Real Business*, labelling the findings “presumption made by a computer” and calling it “absolute garbage”.
“Undoubtedly employing family members is no more a factor in business failures as stupid ideas, cash flow problems or market changes.
“In my experience, family members add value to a business, not the other way around,” Charlie says.
Family businesses are the backbone of the UK economy, and the bedrock of its communities. Two thirds of UK businesses are family owned and there are 4.7 million in total, of which over 17,000 are medium and large businesses, figures from the Institute of Family Business (IFB) show.
In 2015 family firms created 800 new jobs a day – with family businesses now employing over 12 million people in the UK. In the same year their turnover increased by 6 per cent, to £1.4 trillion. And family firms make a huge contribution to the UK economy, generating a quarter of UK GDP, and paying £133 billion in taxes each year.
“The belief that businesses are simply handed down to family members, generation to generation, without a second thought is more old-fashioned than the entire concept of family businesses,” Charlie adds.
“The stereotype of a flaky offspring being given the keys to the kingdom is now only the stuff of poor Hollywood comedies because entrepreneurs understand more and more that the people around them must be able to deliver on their strategies, relatives or not.”
Research by Bradford and Lancaster universities, for the IFB Research Foundation, showed that future owners had a real sense of duty and care towards the family business, legacy, employees and community. In a survey of more than 2,000 current and future family business owners, 90 per cent of the next generation said they wanted to be involved with their family firm because they care about its future success and development. And four out of five had already taken steps to learn about the business to prepare for the future.
“Family businesses have been around as long as plumbing, perhaps longer. And just like the plumbing game, the concept has remained the same, but the way we work has constantly evolved,” Charlie says.
“If a business can remain one step ahead of the competition then the prospects are positive. And that includes family businesses where there is a level of shared responsibility at the core, which resonates across every part of the operation.”
Some 100,000 family businesses transfer ownership between generations each year; a crucial time in underpinning the future of the business. Succession planning is therefore essential for family firms.
Inheritance tax planning can make it easier to pass on a family business and, with the right advisers and long-term planning, you can achieve a successful transfer. There are also reliefs available to family businesses – such as Business Property Relief from Inheritance Tax – which are vital in ensuring businesses can be passed on without being broken up.
Through effective business administration and sound management accounts, business owners will be able to better control their financial situation and awareness of the business in real time. Constructive criticism and debate are also essential for business growth. It’s therefore important to partner with a specialist financial adviser to family businesses, such as Beavis Morgan. We will work with you to implement processes which will help you maintain effective management of your company’s working capital, and apply systems which will help you survive and thrive in challenging times. We will also hold regular meeting with you to discuss progress, where we will ask those challenging questions to help you detect and overcome any potential problems before they become real issues.
If you own a family business it is important to seek specialist tax and business advice to understand the situation for your own firm. Contact Steve Govey or your usual Beavis Morgan Partner for further information about how we can assist.