In this guest insight written for Octopus, Fiona Graham of the Institute for Family Business explains why family firms are enduringly successful.
No matter where you’re from, chances are you know of an amazing family business. Whether it’s your local bakers, the shop where you bought your children’s first pair of shoes, the pub that has a central role in your community or the iconic fashion brand you love. Family businesses are everywhere.
And now, new research by Oxford Economics for the Institute for Family Business Research Foundation, has revealed the full extent of the contribution family firms make to the UK economy. Family firms in the UK now generate a quarter of UK GDP, and more than 12 million people work in a family business.
Far from extinction
When I talk to people about the success of the UK family business sector, they are often quite surprised. Many people assume that family businesses have largely disappeared, and that their strong values, first-rate customer service and longevity are a thing of the past. But I’m pleased to be able to report that the family business model is still relevant and popular with families, business owners and consumers alike.
For example, in 2015 family firms created 800 new jobs a day – with the total number of family business jobs up by 2.3 million since 2010. Family firms now turn over £1.4 trillion annually, up 7.2% since 2010. That’s a bigger growth in turnover than in non-family businesses. In 2016, family businesses contributed £149 billion in taxes – more than the annual NHS budget.
Family firms come in all sizes...
These aren’t just small businesses. While the majority of family businesses are the kind of small local businesses you will find in every town or high street, there are now almost 17,000 family firms that are either classed as large or mid-sized. Family businesses make up 47.2% of all UK mid-sized businesses, and 10% of all large businesses. More than two-thirds of family businesses are found outside London and the South East.
So, what is it that makes family businesses so successful? One key strength for family firms is the opportunity to combine the family’s entrepreneurial mindset while also leveraging their heritage and generations worth of knowledge and experience. This can really help to boost business performance. By doing this, family firms are in a great position to continue to grow, creating value over the long term. It’s part of the reason that, as studies show, family firms outperform non-family businesses over the long term.
Family businesses create value over the long term because they are resilient. Studies show that during economic downturns, family firms fare better than their non-family competitors. Part of that resilience is down to the fact that they carry less debt – they have a longer-term investment horizon and focus more on internal financing for growth.
People are at the core of every business, and competition for talent is fierce. But family businesses have an advantage here too. Research shows that family businesses have higher staff retention rates. Figures from the UK Workplace Employment Relations Survey suggest that family businesses also perform particularly well when measured for job satisfaction and employee loyalty.
The latest report from the Institute for Family Business shows that family business owners aren’t resting on their laurels either. Looking ahead, 63% of smaller family businesses are aiming to grow their sales over the next three years, and 60% plan to invest in improving the skills of their workforce to achieve that growth.
Focused on the future
The next generation of business families is looking to the future, too. People often assume that with all the opportunities available to them, younger generations won’t be interested in their family business. But research suggests this isn’t the case.
In fact, studies by Bradford and Lancaster Universities, for the IFB Research Foundation, showed that future owners had a real sense of duty and care towards the family business, legacy, employees and community. In a survey of more than 2,000 current and future family business owners, 90% of the next generation said they wanted to be involved with their family firm because they care about its future success and development. Meanwhile, four out of five had already taken steps to learn about the business to help them prepare for the future.
With their long-term outlook, strong values, and ambitious growth plans, family businesses are here to stay. And, with the impressive contribution family firms makes to our economy and our communities, that is good news for us all.
Fiona Graham is Director of External Affairs and Policy at the Institute for Family Business. You can read the latest research on family businesses, or find out more about the family business community, by visiting their website.