In 2020, Oxford Economics estimated there were 4.8 family million businesses in the UK, making up 85.9% of all private sector businesses, employing 13.9 million workers, 51.5% of private sector employment.
Family run businesses can be extremely successful. The individuals know each other well and at least in the early days, they are all pulling in the same direction.
Some family businesses go back 100’s of years. Some businesses that appear to be family run, have long since been sold to other owners, but have maintained the image of the family name or profile, sometimes due to the goodwill attached to it or because the family stipulated that as part of the sale.
These businesses have some particular challenges that may not be present in other companies:-
- Families naturally share common values and beliefs, which can really help bring cohesion to the business and create a combined vision and clear goals
- When building the business, family members are more inclined to put in extra hours and increased effort, knowing they have a stake in it
- When you are working with your family you tend to have a natural sense of loyalty and a longer-term vision, understanding that you are building something together for the future
- You might all be more prepared to make financial sacrifices for the greater good, which can help with the early stages of startup, when costs outweigh income
- Family run businesses recruit and retain based on relationships rather than because people have the right skills or training. This can have a negative impact on other team members who are there on merit rather than because of familial ties
- When you operate as a family business, you might be less able to separate out business from pleasure
- Family companies often fail to understand/distinguish between their official roles as shareholders and directors and this can create issues around the formalities needed for compliance purposes
- Conflicts are common in families and these can seep into the working environment
- Generations of family businesses can find that descendants don’t necessarily want to be part of the business. This can create a challenge when the founders want to retire or move on
As with all businesses, it pays everyone to think about what the rules of engagement should be.
We at Aly Young Law can sit down with a family and help they identify important factors such as:-
- Agreeing and setting out the shared goals and vision for the business, so that everyone is on the same page
- Stating clearly what each individual members role is and recording this so that information can be shared if that family member is indisposed for a period of time
- Working out what should happen when people get ill, pass away or simply want to leave the business
- Organising financial provisions to kick in in those circumstances to ensure that the value of the business can be kept within the family
- Set out a process for happens if people fall out with each other
- Making sure that if the long-term intention is to sell the business, that the right clauses are there to make sure that can happen
If you want to make sure that your family business runs smoothly, get in touch and we can help you set out a roadmap for ensuring that you, your family and your business is protected.
Aly Young Law
First published in July/August 2023