Keeping it in the family
When the Lister family went into business together in 2000 the goal was to generate enough money for them all to make a decent living. Eight years on, not only does the company boast a £1.3 million turnover, but it’s also a flourishing franchise.
Their venture, X-Press Legal Services, provides specialist property searches and reports for conveyancing professionals who act on behalf of homebuyers. All five family members are on the payroll. Mum (Lynne) is managing director and Dad (Dave) controls the finances, while sons, Christian, 33, and Russell, 27, and 21-year-old daughter Hannah hold senior positions. Two other directors and a number of friends are also employed.
The Listers were tired of working for other people. "We were fed up with the office politics and having to dash up and down the country,” says Lynne. “We all get on well, so we knew we could work together.”
The company was originally the brainchild of Lynne and Dave, both now 53. But as they were both in full-time employment – as a magazine editor and motor trade consultant, respectively – Christian was tasked with getting it up and running. “I then joined him and we worked full-time for a year before Russell, and then Hannah, came into the business,” explains Lynne.
The franchises bring in combined turnover of £2 million now, but Lynne adds, “It hasn’t been all sweetness and light, and we’ve had to learn to respect each other as work colleagues, but we’re a pretty happy bunch. We like to think we’re a family-oriented business because that’s very important to us.”
A growing trend
The Listers are not alone in wanting to work alongside relations – it is estimated that family firms make up around 60% of all UK companies, and they can provide the ideal arrangement, according to Stephen Alambritis, spokesman for the Federation of Small Businesses. Family members will often share the same ethos, be willing to put in the extra hours needed to make it a success, be loyal to one another and accept the need to make financial sacrifices for the long-term benefit of the firm.
"A good structure where everyone is united will make the business strong,” says Alambritis. “It won’t have problems such as losing key staff to rivals or the sort of internal strife that costs many firms 10% of their productivity."
However, the sad fact is that only one in 10 family businesses will still be going by the time the third generation is ready to take up the reins. Many will end up torn apart by sibling rivalries, conflicts or mismanagement. In the worst cases, the problems can be enough to drive families apart.
This is why the trials and tribulations of family firms make such good television, whether as fictional dramas such as Dallas, fly-on-the-wall documentaries like American Chopper, or business programmes such as I’ll Show Them Who’s Boss and Badger or Bust, which regularly chronicle the internal strife of such companies.
Ruth Badger, trouble-shooting star of Badger or Bust and The Apprentice, has plenty of experience in dealing with family firms as head of her own firm, Ruth Badger Consultancy. “Family businesses are either exceptionally good or incredibly bad – I’ve never found one that’s just mediocre,” she says. “This is down to two things: communication and the boundaries between work and home life.”
A lot depends on which family members are in the mix. “Brother-and-sister businesses are often very successful because the siblings return to separate homes and are quite objective when they talk to each other,” Badger explains. “When it’s husbands and wives it’s normally much more passionate – and that’s where you find your problems.”
Taking the plunge
So do you still fancy starting a family business? If you do, the first question to ask yourself is: do you all get on well – apart from the odd argument – or does civil war break out within five minutes of any gathering? Remember, you’ll be working with these people every day. If you can’t stand the sight of each other after five minutes at Christmas, you’ve got little chance of making a business work.
Assuming you know what type of business you’re looking to start, the next step is to sit down and discuss each other’s strengths and weaknesses. One might be an excellent salesperson, for example, while another could have a financial background.Grant Gordon, the director general of the Institute for Family Business (IFB), says: “It’s important to have a shared vision of what you want to achieve.”
At this stage you will also need to decide on the best structure for your business – such as a partnership or limited company – and for that you need the advice of an accountant
experienced in the field, as the tax and legal issues can be a minefield. For example, this decision could be affected by factors such as the proposed changes to the capital gains tax regime, including the introduction of a flat rate levy for most businesses.
These reforms, which are still under discussion, could be a heavy blow to firms whose owners had built them up over a number of years in the expectation of selling them for a big profit, as the tax take could be higher.
Structure is also important within the firm so you’ll need to assign roles. If everyone has a specific task – dealing with staff, running the shop floor, speaking to customers – it will reduce the risk of stepping on someone’s toes.
Laying down clear guidelines on issues such as working practices, remuneration, holidays and pensions is also essential to ensure everyone knows where they stand and what’s expected of them.
All personnel in the business – whether family or not – should only be employed on merit and in positions they are qualified to occupy. Nothing is guaranteed to cause problems more than someone who has been over-promoted.
Just as important is looking at every issue in a cold, business-like manner, as it’s the emotional aspect of such firms which usually prove to be their undoing, according to Peter Leach, a partner at accountants BDO Stoy Hayward and author of Family Businesses: The Essentials. “Blood is thicker than water and that makes it difficult to fire your son or give feedback to family members about their various competencies and commitment.”
Poor communication will spell disaster for any family business. But most disputes can be avoided – or resolved – if you ensure that good communication channels are in place.
Set time aside each month to air grievances and discuss the direction in which the business is heading, advises Gordon. If there is open communication then the family business is more likely to succeed. “It’s vital to make time for proper family meetings with an agenda – and not just sitting around the Sunday lunch table,” he says. “This will enable everyone to talk honestly about people’s ambitions, the needs of the business and its overall vision.”
One of the biggest issues to tackle is the succession. Who is the right person to take over the reins? How do you decide which of your offspring, for example, will be in charge and how can you diffuse any potential long-term resentment this might arouse?
Howard Hackney, the head of family business at accountancy firm Grant Thornton, says different generations often view the business in very distinct ways. "The founders usually have a driving entrepreneurial spirit to be masters of their own destiny and to create a dynasty,” he explains.
“The second generation will have an inkling of the hard times, but not the same drive, while the third may just stroll into it without having the same affinity for it. The key for each generation is to pass the management control and ownership onto the right people in the next generation.”
So where does all this leave us? Well, family businesses may not be to everybody’s taste, but they can be a terrific way of combining work with pleasure, suggests Hackney. “When it works well you tend to have long-term continuity, loyalty and a happy working environment. But when it goes wrong you have major problems which usually lead to the failure of the business in some way.”
However, for the Listers, it has worked out even better than they could have expected. "It has been an absolute joy and has brought us closer together," insists Lynne. “I’m one of the luckiest people around as I get to see my kids every day instead of waiting for them to visit me on a Sunday with a bunch of flowers picked up at the supermarket.”
The branch of law concerned with the preparation of documents for the buying and selling of property (or remortgaging), always handled by a qualified solicitor. The conveyancing process covers many of the legal aspects of the sale/purchase/remortgage such as land registry, local authority searches, freehold and leasehold status, title deeds and much more.
Capital gains tax
If you buy an asset – shares, a second home, arts and antiques – and then sell it at a later date and make a profit, that profit could be subject to CGT. You don’t pay CGT on selling your main home (which is why MPs “flipped” theirs so regularly) or any securities sheltered in an ISA. Individuals get an annual CGT allowance (£10,600 in 2010/2011) but if you have substantial assets it’s worth paying an accountant to sort it for you.