Q&A: Family businesses

Fiona Graham of Family Business UK (formerly the Institute for Family Business) on why it can pay to keep it in the family when starting and running a business

How many family businesses are there in the UK?

There are around 5.2 million family businesses in the UK making up 86.2% of all businesses and employing 14.2 million people. They generate 31% of UK GDP and contribute over £657 billion every year.

While 97% of family businesses are micro and very small businesses, some of the UK’s biggest and most popular brands are also family owned.

Is it still common for businesses to be family owned?

Yes - very. 88% of all UK private sector firms are family owned. And new family firms are being set up every day. The idea of working with those closest to you to build a successful business and legacy to pass to future generations, is still really appealing to people today. And for multi-generation family firms, they continue to innovate and change to make sure they have an exciting future ahead of them.

That’s true not just in the UK. Family business is still the world's most common business ownership model .

Are family businesses operating in most industry sectors?

One of the many great things about family businesses in the UK is just how diverse they are. The family business model applies to all sectors, regions, types and size of business.

And you’ll encounter these businesses throughout your day. They will have made the bread you have for breakfast, the shoes your kids wear for school, the infrastructure company upgrading your local train station, the shops you visit at lunchtime, the pub you visit on the way home, or the restaurant you visit for dinner. We all encounter family firms everyday, even if we don’t realise there is a family behind that business.

It is often said that family-owned firms outperform others...

Family firms have some key characteristics which can give them the edge when it comes to performance.

At the heart of family firms is a long-term outlook, looking to build something stronger to pass on to the next generation. This means they can make longer-term investment decisions, that give them an edge over the competition. They are also very innovative, and with owners who are close to the business, they can be more agile in responding to new opportunities.

What are the advantages of running a business with your family?

We’ve covered some of the business benefits. For family members there are individual benefits too. The key one being working with your loved ones, with who you have shared goals, motivation, mutual trust, common purpose and shared values. It can ben incredibly rewarding to work together to build a legacy for your family.

What are the common sources of conflict in family-run businesses?

Conflict occurs most frequently where people aren't communicating effectively. It's important to avoid confusion and conflict by building clear principles and processes. Business families need to work to create and maintain positive and healthy relationships. They need to understand how conflict arises, and work as a team to prevent and solve problems, as well as building trust. But the same could be said of all businesses, of course.

What is the key to success when running a family business?

Learning how to manage the governance of the business and the family. Good governance should be organised from the beginning, with buy-in from everyone on rules and procedures for running the business. There is no one-size-fits-all solution - it's something that needs to be worked out to suit the circumstances of individual families.

Do you recommend setting up a 'family council' to decide key issues?

Yes, but a family council should go hand in hand with establishing a family constitution, which all the family shareholders agree to. This will establish the remit of the family council and set out its rights and responsibilities.

How important is tailored tax advice when starting a family business?

In the early stages of any business, the focus is on making the business a success - and at that stage many start-ups don't know if they will remain family businesses. Specific tax advice for family firms is available further down the line, and of course should be sought to ensure a smooth transition of ownership when the time comes.

How important is succession planning in family businesses?

Succession planning is a key consideration for family firms. It is a challenge, but also an opportunity to look to the future of the business and family. Plan early and try to implement any transition in steps.

What sources of advice are there for family businesses?

The Institute for Family Business is a great place to start. We have plenty of resources and support, whatever stage of the family business journey you are at, and a wide network of contacts in the advisory and professional services fields, with expertise in all things family business. You can also follow us on Twitter.

Written with expert input from Fiona Graham of Family Business UK.