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Are family businesses facing a succession crisis?

POSTED: 13th November 2015
IN: Business news
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A number of recent studies have led to experts asking if family businesses in the UK are now facing a succession crisis.

Family businesses make a major contribution to the UK economy, generating over £1.1 trillion annually, but due to a lack of foresight and planning, many are now facing a succession crisis that could result in them selling their business. According to the Family Business Survey 2014, produced by Family Business Place (FBP) and Charles Russell Speechlys, 65 per cent of family business owners are considering selling their business because they can’t hand control over to a family member.

Worryingly, only 10 per cent of the family businesses surveyed said they had any governance structure or succession plans in place.

Research from PwC confirmed this trend, as well as the impact it can have on the future of a family business, finding that only 12 per cent of family businesses make it to a third generation, and only 1 per cent make it beyond a fifth.

What is causing these issues?

According to FBP’s report, 55 per cent of family business owners cited succession as the biggest issue they are currently facing. When asked why succession was such an issue, some of the answers respondents gave included a lack of succession planning, as well as managing relationships with children who have little or no interest or aptitude for the business.

Friction between family members was another issue standing in the way of a smooth succession, especially between younger family members wanting to take risks or introduce new technology and processes, and older family members more concerned about risks and jeopardising the status quo. 8 per cent of respondents said sibling rivalry was the biggest issue within their business, with 30 per cent blaming the next generation for causing problems.

Finances were another cause for concern, with disagreements over money being cited as the biggest issue for 10 per cent of the business owners surveyed.

Overcoming succession issues

What steps can family businesses take now to reduce the chance of succession issues in the future?

PwC highlights the importance of forward planning, especially when an older business owner is starting to think about retirement. Ideally, family businesses should start thinking about succession plans several years before the planned hand-over of the business.

Business owners should approach succession planning in the same way they would approach any other business decision, analysing their different options, considering the right timing, and consulting with everyone who has a stake in the process and business.

Planning several years in advance leaves time to create a development plan for the next generation, if this is deemed necessary. This plan could involve training, work experience or mentoring – whatever is needed to prepare them and the business for the potential handover.

It is also important to seek independent, impartial advice about succession options. The FBP report found that while two thirds of family businesses have a board of directors in place, 73 per cent haven’t appointed any non-family members to the board, and 80 per cent have no non-executive directors available to offer advice or counsel.

Supporting the UK’s family businesses

There is no denying the great impact family businesses have on the UK economy. Recent figures show that the family business sector accounts for 3 million companies in the UK, making up 2 out of every 3 firms in the private sector.

Between them, family businesses generate £1.1 trillion, almost a quarter of UK GDP, and provide over 9.2 million jobs.

Paul Andrews, Founder and Managing Director of Family Business United, commented: "The contribution that family firms have made over the years in terms of revenue generation, employment, contribution to GDP and tax revenues, not to mention their support of the communities in which they operate should not go unnoticed and we are keen to continue to champion this cause and celebrate the family business sector.”

Aldermore offer a range of business savings and business finance options, perfect for helping family businesses to grow.

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