Family Business

Family businesses contribute nearly a quarter of UK GDP (£1.1 trillion) and provide 2 in 5 jobs.

These are big figures, but dwarfed by those from the US where family businesses contribute 50% of GDP and 60% of jobs. Globally the numbers jump again to an estimated 70-90% of global GDP and jobs (Institute of Family Business and Family Firm Institute).

Definition

Precise definitions of a family business vary, but typical criteria relate to ownership or management. One common definition refers to any two members of the same family, who own or operate a business together. These businesses can be a small market stall in India, or be listed on the stock exchange such as Associated British Foods or Morrisons. They can also span several generations, such as Warburtons the baker whose current chairman is Jonathan Warburton – one of the fifth generation to own and work at the family business.

Maybe you know people who own, run or work in a family business?

Whilst the model for family businesses obviously vary, we can identify some common threads.

Decision making power focused in one place (the family) through stock holdings or management positions. Family goals that are closely aligned. A close link between the business's success and personal and family wealth. Strong relationships with customers, suppliers and communities – creating a sense of stewardship.

Together these can create some common problems:

• Succession – a clear succession strategy is considered the most important characteristic for successful family firms (Barclays Report on Family Businesses)
• Stagnation – a failure to make decisions or innovate
• Family arguments and power struggles (though Andy Hill in the FT argues that these can be positive too)

Common strengths by contrast are the:

• Ability to make quick decisions through focused power and shared goals
• Taking the long term rather than the short term view
• Culture and identity of a family business

Credit crunch – in it together

The credit crunch impacted on all businesses severely but how it affected family businesses showcases their strengths. During the credit crunch family businesses had fewer requirements for external finance and, if they asked, were more likely to receive it. These are both indications that the businesses had stronger, less leveraged balance sheets. This is a good demonstration of a more long term view which can be valuable in dealing with unexpected events. Secondly, although hit by insolvencies, family businesses suffered fewer insolvencies during the credit crunch than non-family businesses. The key reason is again likely to be strong balance sheets but the sense of all being in it together also acts to prevent family businesses from going under (Institute of Family Business).

Modern families

The big family corporations have been introducing professional management for years. This combination of fresh talent with long term shareholders is often particularly successful. It provides a business with different perspective and professional experience to go with the existing direction and culture. This can be appealing for investors particularly when combined with the resilience discussed earlier.

Conclusion

The impact that family businesses have collectively on the world is huge. Families can bring a strong ethos and culture which can be hard to create from scratch. The strength and determination that can spring from such clearly shared values can be very effective both in start ups and in larger companies.

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