The family way

The West Midlands is home to many family-owned businesses. Indeed, three of the top 10 longest surviving UK family businesses reside and trade in the region. However, as the economic outlook presents real challenges for many organisations, how can family-run firms ensure they continue to prosper?

Family-owned organisations, despite contrary perceptions, still form the vast majority of companies undertaking business every day. They account for the structure of between 70 and 80% of all businesses across mainland Europe, a figure that is also replicated here in the UK. As such they form a central and important basis for how today’s overall business community is constructed.

Previous recessions have also shown us that a downturn is fertile ground for new family-run enterprises and can make a significant contribution to helping the economy to grow. Running a family business has both advantages and undoubted challenges.

Starting, leading and working in a family business can bring valuable benefits compared to other businesses – from greater trust between staff to increased flexibility. However, without careful management there can also be the potential for problems from family members lacking critical skills, poor communications and clashes over pay.

Dr Yong Wang is a Reader in Family Businesses and Entrepreneurship at the University of Wolverhampton and has been studying the particular world of the family organisation for a number of years. He says family businesses must pay attention to three key areas if they are to remain competitive and build a profitable and successful future. He comments, “The critical challenges in my view are taking succession planning seriously, addressing skills gaps and ensuring the right access to finance. Succession planning is often a taboo subject for the owners of a family-run organisation. This is often founded in an unwillingness to confront the issue and discuss it openly with other family members – perhaps worried psychologically about losing control or having to choose between offspring. You then have the other side of the coin with members of the younger generation unwilling to take over the mantle of the family firm, preferring instead to flee the nest and perhaps consider the alternative attractions of forging a career in a large corporation.”

Dr Wang says that failing to ensure the correct succession path can lead to problems further down the line with family members forced into management positions for which they have been ill prepared for. He continues, “really a family business should be thinking 20 years in advance if it is to ensure a smooth handover from one generation to the next and make sure it has a succession plan in place. This will help identify the most suitable, and willing, family member(s) best suited to take the business forward.

It allows for adequate time for appropriate training and up-skilling and removes the potential for ill-advised decisions taken in haste.” After succession planning, Dr Wang believes another critical area is current skills. It is often the case in his experience that family companies because of their very nature lack the breadth of skills and experience that can help them succeed.

He continues, “non-family employees, as well as the family itself, will often lack proficiency in their roles which commonly require performing broad management responsibilities, as well as a number of others. Whilst a large company has the resources and manpower to tackle this, the smaller-sized business does not. In such cases, it is imperative that family owners not only seek influential and skilled employees from outside the family to bolster the overall company skill set, but that they do not forget to address skills, training and development among the necessary family members also.

There is plenty of support, advice and courses available to enable smaller-sized companies to do this.”

Finally, access to appropriate financial support also commonly poses problems for family businesses. In the current climate persuading banks to lend debt-based finance can be hard, whilst undertaking this course generates – for many family owners – worries around providing security and lending collateral.

The alternative – equity finance – which involves parting with a stake in the family business – is often another extremely hard choice to make. Again, losing control of the business and accepting external investment proves problematic for owners wrestling with how best to finance the business going forward. Either route is not straightforward, but like the succession planning route, is one that cannot be ignored.

Dr Wang concludes, “If a family business is prepared to address the combination of long-term succession, improving the skills within the company and honestly assessing the right kind of finance package, they will be going a long way to securing its present health during tough economic conditions, as well as putting in place the key building blocks that can ensure its survival for future family generations.”

Wolverhampton Business Solutions Centre

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