A family affair: can the family business save the economy?

15 December 2017

The results of a recent survey of 700 manufacturing companies in the UK carried out by the Office for National Statistics prompted the Chief Economist of the Bank of England to conclude that the solution to the UK’s sluggish economy lies in the hands of its family businesses.

The survey attributed management scores and output per worker across a range of businesses analysed by management or ownership type. Primarily the businesses were divided into two groups: domestic and multinational. The domestic group was subdivided into: not-family-owned; family-owned and family-managed; and family-owned but not family-managed and the results were as follows:

  Average output per worker
All domestic-based manufacturing companies £41,350
Non-family-owned businesses £53,340
Family-owned/family-managed businesses £36,910
Family-owned but not family-managed businesses £50,000

 

By comparison productivity and management scores were considerably higher in multinational companies. Both UK-owned and foreign-owned companies produced in excess of £55,000 per worker per year.

Since 75% of UK businesses are family-owned there must be a benefit to the whole country in helping them to improve their efficiency, a view that is supported by the Government’s recent Industrial Strategy Paper, which states that SMEs are less likely than multinationals to introduce new products and processes.

It would be far too easy to take a negative view of Britain’s small family-owned businesses. They may be debt-averse and reluctant to take risks; and of course in protecting the bloodline they often raise barriers against the introduction of ambitious, skilled people from outside. These very characteristics, however, make for stability and resilience, attributes that are extremely valuable in tough economic conditions. And there are many examples of highly successful family-owned businesses.

According to another survey conducted by Families in Business (FiB), the independent support organisation for family firms, almost 16% of family businesses believe innovation and development is irrelevant to them, and 66% do not even plan and budget for it. Commenting on these findings Andy Haldane, chief economist of the Bank of England, said “With so many of the UK’s small and medium-sized firms being family-owned, efforts to improve their efficiency, governance, skills and R&D could work wonders for these firms’ productivity, and for the economy’s health, at a time when it has never been more welcome.”

The performance of the UK’s family businesses fall behind our main competitors in Europe. In Germany the Mittelstand (SMEs) comprise two-thirds of the economy and most are family-owned. Family businesses produce 44% of Germany’s GDP. They are responsible for 23% of Europe’s exports (to non-EU countries). By comparison the UK’s SMEs produce 10% of Europe’s exports. According to Andy Haldane, greater exposure to export markets by the UK’s family businesses would be a spur to improving management techniques and innovation. He said “Firms that export are likely to be exposed to global competition and many are integrated into global supply chains. This increases incentives to boost efficiencies and to match international best practices. The productivity benefits these external-facing firms bring underscore the importance of openness to trade and foreign direct investment in generating rising productivity and living standards over time.”

More needs to be done to encourage good management practice in family-owned manufacturing businesses, as well as promoting innovation, and assisting them to find exporting opportunities.

The take-up of R&D tax credits continues to disappoint. Three quarters of R&D grants to private companies were obtained by only 400 companies. 86% of family-owned businesses have never filed a patent. Many businesses are content to stick with tried and tested products and merely carry out improvements in order to keep up with the competition. But the most successful companies seek out new markets, create new products and processes and harness the new technologies. This involves taking risks with both time and money, but practical assistance and funding are available to support innovation and exporting. As for management techniques, it’s never too late to update yourself by buying into a training course.

If you think your family business could improve its contribution to the economy, and at the same time increase your own prosperity, why not get in touch with me or one of your local UHY advisers to help you to find the appropriate resources?

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