Expert view: Family business issues

Shelim Rahman, partner at accountants and business advisors Beever and Struthers, examines issues affecting family firms and professional advice and service to address those problems.

Shelim RahmanFamily businesses are crucial to the UK economy because they account for almost half of all businesses. New research by Barclays Business states the number of families starting a business in Britain has hit its highest level since the start of the recession six years ago – there are now some 2.42 million family-run SMEs in the UK, contributing £180bn a year to the economy and up from 2.32 million in 2011.

Given the significance of the family business to the UK economy it is alarming to see statistics that only about one third of family business survive to the next generation with many wound up or sold on to larger corporates.

Family businesses face the same challenges and opportunities as any other business, but with the complicating factor of managing family relationships.

Areas such as succession and strategic planning, remuneration versus reinvestment, can all be potential battlefields, with failure to find a solution that works for all creating casualties beyond the boardroom.

Adopting a formal management and governance structure helps to define the roles and expectations of key individuals and introducing accountability based on key performance indicators benefits the business as a whole. Family members aren’t always the best candidates for the top jobs because they can lack relevant experience.

The separation of ownership from management can enhance the ability to lock-in key individuals who aren’t family but will feel valued in the business. A culture based on nepotism rather than a meritocracy based on performance will alienate key performers. Offering directorships and access to long-term incentive schemes such as the EMI share option scheme allows family members and others to benefit from the growth of the business.

We advise on formal internal structures including shareholder and partnership agreements and implementation of tax efficient incentivisation schemes. Seeking professional advice on succession planning should not be delayed and the earlier it is reviewed the better it can be implemented. Our role as business advisors is to provide objective advice while considering the needs of the family as a whole.