Research conducted by Companies House found that roughly two thirds of UK businesses are family owned and operated equating to roughly 4.8 million family owned businesses. Of the 4.8 million, over 16,000 are categorised as either medium and large businesses, meaning over 16,000 of these family businesses have turnovers of over £15 million a year.
What is the importance and meaning of a family business?
Family owned and operated businesses have historically made up a huge part of the UK economy and even with increased globalisation and dependence on imported goods, family businesses are still a key cog in the economy. They provide employment to roughly 14 million individuals (which is over 20% of the UK population), generating turnover in excess of £1.7 Trillion (as of 2021-22) and contributing providing £575 million in value added to the UK economy (2023, Deloitte). Therefore it is safe to say that family run businesses are a cornerstone to the UK economy and to many individuals livelihoods!
As family owned business are so important, it would be beneficial to know what is actually meant when someone says 'Family Business'! A family business could be a company that you had inherited from your parents, who inherited it from their parents and so forth, or it could be a company that you and a family member incorporated together, but broadly speaking a family owned business is any entity where the control of business is held by the same family. Whether they are the owners and/or management, if one family has the control and/or the voting rights then it is a family business.
What benefits are there to a family business?
First and foremost the primary benefit of being family owned is the connection between the owners/managers of the business. Being a family business you have a unique closeness with your management which can provide your business with both opportunities as well as challenges. As a family business you would have more trust in each others both in decision making and financial dealings. This can make your business quicker to react to available opportunities giving it an advantage to a structured business where managers may need to seek out approval from directors before making certain decisions.
Typically family businesses think progressively and contemplate short-term targets whilst also setting long-term objectives for the business to ensure its continued growth. The reason for this obsession about long-term future growth is the overarching goal for the business to generate wealth for generations to come. This progressive thinking gives family businesses additional benefits over other non-family businesses as a non-family business may only look 5 years ahead which could lead to missed opportunities.
What are the typical objectives of a family business?
There could be many objectives of a family business but here are some of the most common:
Long-Term Sustainability
As discussed above, family owned businesses are forwards-looking and commonly have long-term sustainability set as its primary objective for the business. This does not mean that the business must be run in a specific manner but instead it involves reviewing the options available and then making the best decision to ensure that the business continues generating profit and wealth for future generations.
Legacy
Many people who own family businesses state that one of their main objectives for running a family owned business is to create a legacy for their family. This can also be referred to 'how we will be remembered'.
Balancing the needs of the Business and the Family
Obviously running a family business has the added complexity when making decisions because the decision must be beneficial to both the business and family. This is particularly difficult when there is a decision which benefits the business greatly although making this decision would not align with the interests of the family.
An example of such a decision would be a choice to reinvest business profits into the business to aid the businesses growth which could conflict with family members individual aims to receive dividends from the end of year profits.
Local Responsibilities
As a family run business it may have a foundation of regular customers situated in your local community who have a certain loyalty to your business. Whether this is due to the business providing jobs to the local community or because you provide top quality goods and/or services.
This loyalty could also come with certain expectations for the business to have a positive effect on the local community (in addition to providing jobs) the business may support local charitable causes, contribute to the local environment or be an advocate for positive change in the local area. Therefore an objective of many family run businesses is to build their businesses reputation to a point of high standing.
Conclusion
Within this article we have learnt what a family business is and how important they are to the UK economy, as well as some of the objectives that a family owned business aims to attain throughout the lifetime of the business regardless of the family member that is managing the business at the specific point in time.
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