Family businesses continue to play a major role within the global economy. Looking back, though global GDP growth in 2023 was 3.3%, in the same year, the world’s top 500 family businesses saw revenues increase by more than triple that (10%), bringing in $8.8 trillion[i] - a sum that would equate to the GDP of the world’s third largest country behind the US and China and one that employs 25.1 million people[ii].
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Closer to home the power of family businesses within the UK is arguably even more substantial. In the same year, family businesses created £2.8 trillion in turnover, contributing £422 billion in tax, providing 59.1% of the economy’s gross added value and employing 15.8 million people; within this, large family businesses generated an impressive £974 billion in revenue[iii].
The centred management nature of these businesses, often around a family unit, means we typically see well capitalised companies working to very long-time horizons and unconstrained by the shorter-term value orientation associated with shared ownership. Of the world’s leading family businesses, 85% are more than 50 years old[iv]. In recent years, this focus on longevity has given them a distinct robustness.
The relative freedom from external investor pressures meant family businesses were well placed to weather the covid pandemic and recent rise in inflation. Likewise, their ability to make wholesale decisions quickly within a family board has given them the agility to adapt to changing economic landscapes and markets. This is particularly valuable today as businesses worldwide navigate the reality of tariffs and the advent of artificial intelligence.
However, exposure to external flux is driving change within the family business operation. Increasingly we are seeing boards transition to being fully professionalised as family members look to safeguard the future of their business as they reduce their own direct involvement. A related concern in this respect has also been on securing the market value of their business as they look for a potential exit, in some cases prompted by recent fiscal changes around incentives and inheritance. By some estimates, 60% of British family businesses now anticipate a future reduction of investment of more than 20% due to changes to business property relief alone[v].
Keeping company
This contemporary focus falls sharply against the perennial issues which drive family businesses. These typically revolve around deciding when and how to involve the next generation in a family business and tying this to the context of wealth and how it is generated. A third or fourth generation may not be able to appreciate the coalface work done by the previous generations who began the business and who made it successful. While those currently running the family business may hold reservations on supporting alternative entrepreneurial ventures by other family members.
As many families want a clear separation of their private and professional lives, the grey area between the two can become a potential minefield. Establishing agreed roles and principles is crucial here, as is an open and creative family dialogue that involves all members.
There are rarely easy answers. No two ideas are the same, so how do you decide which sibling venture is worth investment over another – and what if a personal project collapses, costing the broader group? If one family member has given many more years to the business than another, is that remunerated in salary or in shares as well? If a core family tenet is the provision of education, is the purpose of this to have individuals well-placed to support the business, or empowered to find their own path?
There are other considerations too around blending age and experience. Increasingly, we’re seeing younger families whose business exits do not coincide with retirement age. Inheritance and the next generation transition might be decades away, but careful planning today can be the best way to secure a happy, and long-lasting family future. For older family businesses, the timing of passing on beneficial ownership and legal responsibilities can be very poignant if a child is yet to secure the right professional experience.
