What you need to know before starting a family business

Working family business

Stuart Baillie is a devoted family man. The married entrepreneur enjoys an extremely close relationship with his three children (see picture below) – and this is fortunate considering he sees two of them every day at his flourishing publishing business.

While the 55-year-old is managing director of Dog World (also see below), which produces a range of print and online publications, his son, Simon, 28, looks after the company’s digital operations and Amy, his 25-year-old daughter, runs the accounts department.

“It’s lovely having my family around me and, in some ways, it’s a comfort blanket,” says Stuart. “If there’s a problem or I need to let off steam, then I can do it with them in a way that wouldn’t be possible with other members of staff.”

Stuart, who bought the business in 2007, has had his children involved for the past six years. The fact they travel together to the office – a journey that takes more than an hour each way – gives them the opportunity to discuss plans and troubleshoot.

“You can never be as honest and frank with someone working for you as you can with a business partner or family member,” he says. “They give you the ability to share more because they know you so much better.”

“Family firms embody responsible capitalism”

The Baillie clan is one of a growing number of families who have decided to work together. At the last count, there were a staggering 4.7 million family-run businesses in the UK, according to data from the IFB Research Foundation, a charity promoting a greater knowledge and understanding of family firms.

Even more impressive is the fact that 100,000 new family firms were created in 2015 alone. This helped push up the total number of people they employed to an estimated 12 million – an increase of 300,000 on the previous year.


Dog World magazine, above.

This all means such businesses can rightly claim to be the backbone of the UK economy, according to Fiona Graham, spokesperson for the Institute for Family Business, who points out that 10.9% of the UK’s largest companies are family-owned.



The Baillie family, above.

 

“Family firms have strong family values that are passed down the generations and shape the way the business operates,” she says. “Thanks to their core principles and embedded long-term orientation, family firms embody responsible capitalism.”

While no two family businesses are the same, Ms Graham believes that they do share some important common features. “They take a long-term approach to investment, avoid excessive debt and have low staff turnover,” she says. “With their commitment to employees and the communities they operate in, these firms create a greater sense of loyalty and a lasting legacy.”

 

Charlotte Perkins (see below) is group managing director of the Wilson Organisation, which organises The Midlands Family Business Awards, which was set up eight years ago to highlight the successes of such firms in the region.

“Family businesses play a crucial role in our economy, but aren’t always very good at talking about their successes,” she says. “The awards are a way of helping shine a light on their achievements.”

These businesses also come in all shapes and sizes. “New family businesses are created each year by exceptional entrepreneurs who can see the future and are helping to reshape it,” she adds.



Charlotte Perkins group managing director of the Wilson Organisation.

“Their entrepreneurial spirit is creating a legacy for the next generation.” As well as running the annual celebration, the Wilson Organisation is, itself, a family firm. In fact, it’s now in the hands of the third generation, with the business having provided insurance and financial advice to businesses and individuals for more than 100 years.

“We can all name a few great family businesses, whether it’s a small local firm or a brand that you always buy,” adds Ms Perkins. “The one thing they tend to have in common is trust. We are far more likely to engage with businesses that have similar values to us.”

Avoiding a family fallout

Of course, family businesses can also be fraught with problems – especially should jealousies and sibling rivalries be added into the mix.

Stuart says the potential downsides concern whether his offspring are staying with the business out of family loyalty or if they would have better prospects – as well as potentially higher salaries – by working for someone else.

“To make a family business work, you need to be very open and honest,” he says. “If something is bothering you, then you need to get it out in the open otherwise it will end up causing problems in your home life as well.”

When these firms go wrong the fallout can affect everyone involved, ending with damaging rifts that last a lifetime.

 

It is a point acknowledged by Emma Jones, founder of Enterprise Nation, who says public spats can be disastrous for public relations – as well as potentially sowing the seeds of disharmony further down the line.

“I’ve seen family members arguing in front of clients and employees,” she says. “When starting a business with a family member, you can have a huge falling out one minute and be happily planning the next – but you need to be careful not to do it in public!”

The good news is such issues can be avoided by setting clear ground rules before you start your venture. Perhaps the most important of these will be agreeing when to switch off and be family members again – not business partners.

“You need a sense of separation between what’s work and what’s not,” says Ms Jones. “I know many husband and wife teams who feel the temptation to endlessly talk about the business, but you have to create time and space for your personal relationships too.”

Family time has been crucial to the success of General Building Plastics (GB Plastics), a Staffordshirebased building products supplier, which was started in 1990 by Janet Sutherland and now boasts a £4 million turnover.

Two of her children – eldest daughter, Wendy, and son, Alan – joined the firm in its first year. Both have since become directors and are in charge of running the operation on a daily basis.



The family behind General Building Plastics.

For Wendy, family time is vital. “You must try to make time for family outside the business, such as Sunday lunch or an evening out, and make sure everyone in the family is included,” she says.

Another strong foundation for working alongside family members is being honest about how well you get on – especially when you have a difference of opinion. You also need to have a direction and overall goal for the venture.

“It’s important to really understand what you all want from the business, and that these wishes are compatible,” adds Wendy. “It just won’t work if one wants to expand and risk it all if the other wants security and a low risk business.”

This can be particularly relevant when brothers and sisters work together. “As close siblings, we have a feel for each other’s emotions, which can be great in important meetings or negotiations when communication has to be agile yet subtle,” says Wendy.

“Family businesses must have regular meetings to discuss the business, what is happening and where it is heading,” she adds. “If we hadn’t made time to discuss things properly, then we wouldn’t be half the company we are today.”

Wendy insists that following such rules will increase the chances of success for family firms and builds on the natural benefits of such businesses. When they work well, she insists, they can be a fantastic way of earning a living.

“The fact you already have a link means it’s easy to feel that you are a real team that is pulling in the same direction with the same goal for the good of the family and the overall success of the business and enterprise,” she explains.

 

Seven keys to success for family firms

  • Have a shared vision: everyone needs to have the same end goal.
  • Be realistic: know the strengths and weaknesses of everyone involved.
  • Put in place the right corporate structure.
  • Set ground rules: ensure everyone knows what is expected.
  • Communicate: discuss problems, issues and plans regularly.
  • Have time away from business talk to just be family members.
  • Discuss longer-term goals and succession planning.

 

Useful contacts:

Institute for Family Business - Tel: 020 7630 6250; Ifb.org.uk
Enterprise Nation - Tel: 020 7257 9525; Enterprisenation.com


Five questions to ask before you start

Before rushing headlong into a business with your nearest and dearest – at both a financial and, potentially, emotional cost – you need to ask yourself a number of questions.

1. How well do you all get on? Do you have a close relationship or is there a full-scale war within minutes when everyone is under the same roof? If spending Christmas Day together is torturous, then it will be a nightmare running a firm together when you’re potentially facing financial problems, disagreements and day-to-day stresses.

2. What is your overall aim? Do you want to set up a business from scratch or buy one that is already established? Maybe you already own a firm and are considering bringing your children into the organisation.

3. What qualities can each family member offer? Are there specific qualities – or character traits – that are likely to influence the roles that each person can play in the business? This will involve a frank discussion of each person’s strengths and weaknesses.

One might be an excellent salesperson, for example, while others could have financial or marketing backgrounds. Emma Jones at Enterprise Nation agrees. “You must be sure of two things: that you have different and complementary skills and that you have a clear agreement in place to guard against any potential falling out.”

Trust, she suggests, is one of the biggest factors. “Hopefully, when starting or growing a business with a family member the trust is implicit,” she explains. “You know that person well and you know you’re in it together.”

 

4. What is the best structure for your business? One option is to be a limited company. However, some businesses are carried out through a general partnership or a limited liability partnership. There are pros and cons with each, so the advice of an accountant experienced in the field is a must as the tax and legal issues can be a minefield.

Having the right form of governance in place – on both the family and business sides – is crucial, according to Fiona Graham at the Institute for Family Business. Although this is a long process, it’s also one that constantly evolves.

“Defining who does what – and how – in the family business is important to ensure its smooth running as everyone involved knows what to expect,” she says. “It creates resilience and helps maintain a clear vision for the future of the business.”

It may also be worth bringing experts on board, says Charlotte Perkins of the Wilson Organisation. “Balancing the interests of the family with those of the business can be challenging,” she says. “Although many family firms are reluctant to bring in non-family members to senior roles, professionalising the business is a key factor in long-term success.”

5. Have you planned for the future? While running the business on a daily basis is crucial, successful firms know the direction in which they are headed. This means succession planning has to be near the top of the agenda.

Who is the right person to take over the reins? How do you decide which of your offspring, for example, will be in charge? Will there be any long-term resentment about this decision that may need to be diffused sooner rather than later? 

“Succession has always been a major issue for many family businesses and is certainly a factor in determining their level of success and longevity,” says Ms Perkins. “Engaging the next generation is as important as ever as millennials have a very different outlook on many aspects that can make a significant difference to the family business.”

The next generation can add a lot to the business. “Their understanding of digital, work-life balance and brand can be hugely beneficial in driving forward the family business and ensuring both its sustainability and long-term growth and success,” she adds.

Published: 21 March 2017
Last updated: 28 May 2017

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