Research suggests family businesses could be headed for extinction

The death of the family business: One in five people surveyed believe it’s unlikely any family businesses will exist in the future 

New research by insurance provider Direct Line for Business reveals owners of family-run businesses are worried about their companies’ future. Over a quarter (29 per cent) of those operating a family business fear their company will die out when they retire. Many of these business operators (21 per cent) believe it is unlikely any family businesses will exist in future.
Owners of family-run firms don’t believe younger generations necessarily have the desire to take on running family businesses. A third of (33 per cent) of these business operators believe family members are not as interested in pursuing the family business as they were in former generations. One reason for this could be that Gen Z are more interested in starting their own enterprises as research shows that one in seven (15 per cent) university undergraduates is planning to embrace entrepreneurialism and start their own company after graduating.
A third of family business owners (33 per cent) admit that what keeps them up at night is the thought that younger generations would make changes to the business that they themselves wouldn’t agree to.
 Table one: Concerns for family business owners
Concern
Percentage of family business owners who have this concern
My family will not have the necessary skill / ambition to continue the business
38 per cent
Young people are not as interested in pursuing the family business as they were in former generations
33 per cent
I’m worried that young generations will make changes to the business that I wouldn’t agree to
33 per cent
Inheritance tax rules make it very difficult to pass on a family business
33 per cent
My family business will die out after I retire
29 per cent
It is unlikely that any family businesses will exist in future
21 per cent
Source: Direct Line for Business, 2017
A third (33 per cent) of family business owners also disagree with the inheritance tax rules that they believe unfairly penalises those seeking to pass on their business as a legacy to the next generation.  When it comes to naming a company, there are 18,341 family businesses registered with Companies House. The clear majority (18,020) are listed as ‘and son’, with just 290 listed as ‘and daughter’ and even fewer (15) listed as ‘and son and daughter’; ‘and grandson’ (14) or ‘and granddaughter’ (two).
Jane Guaschi, Business Manager at Direct Line for Business, said: “Family businesses are a huge contributor to the UK economy and it’s great to see so many companies feature relations working together to generate an income. We would hope to see more ‘and daughter’ businesses in the future as more women take on senior roles in a variety of industries.
“Family businesses offer unique opportunities for the next generations, as they are often able to gain valuable experience at a young age. Future proofing can, however be difficult, so a succession plan is essential. It’s also important to remember that if you run a business and employ people then you may need to have Employers’ Liability insurance. It’s essential to understand your responsibility under the Employers’ Liability (Compulsory Insurance) Act 1969 (ELCA). The full ELCA guide can be downloaded here and includes details of what counts as an ’employee’ and explains which organisations that are exempt”.
The construction industry has the highest volume of businesses (25 per cent) highlighting the family roots with an ‘and’ relative included in the business name. Wholesale and retail trades come in second (15 per cent), with agriculture, forestry, fishing and manufacturing (eight per cent) joint third.
On a regional level, London has the highest proportion of businesses with an ‘and’ relative listed in the name (14 per cent), followed by the East of England (13 per cent). The North East and Northern Ireland have the lowest proportion (three per cent each).
Table two: Regional breakdown of businesses with ‘and family member’ in the name 
Region
Number of businesses with ‘and’ family member in the name
Percentage of all ‘and’ family member businesses
London
2,545
14.1%
East of England
2,412
13.4%
North West
1,888
10.5%
South West
1,819
10.1%
South East
1,789
9.9%
Yorks & Humberside
1,761
9.8%
West Midlands
1,688
9.4%
Scotland
1,172
6.5%
East Midlands
1,161
6.4%
Wales
794
4.4%
Northern Ireland
510
2.8%
North East
475
2.6%
Other
5
0.0%
Grand Total
18,019
100.0%
Source: Direct Line for Business, 2017
Across the UK, more than a quarter (28 per cent) of those who own small and medium sized enterprises (SMEs) employ family members, with one in seven (14 per cent) currently doing so on a full-time basis and one in 12 (eight per cent) doing so on a part time basis. A further one in 12 (eight per cent) plan to hire a family member in the future, potentially when they reach a suitable age or level of experience.
According to the Institute for Family Business, family run companies contribute £460 billion to the UK’s GDP, employ over 12 million people and contribute £133 billion to the UK government in tax revenues.
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