What is a family-run business?
Family businesses are everywhere in the UK. They make up 88% of all businesses in the country, and they’re responsible for a hefty chunk of GDP. That’s why family businesses are often referred to as the backbone of the UK economy. But what exactly is a family business?
Family business definition
Family-run businesses can be any size and are found in every industry. It’s common to hear ‘family-owned’ and think of a small shop in a quiet village, but some of the biggest companies in the world are family businesses. Samsung, Walmart and Dyson are examples of family businesses that are, frankly, massive.
The number of people employed by family-run businesses is accordingly massive. Around 15 million people work at a family business, which is just under 50% of those privately employed in the UK.
There’s actually no legal ‘family business’ structure. No matter how a business is registered, it’s generally considered a family business if:
The business owner or their family members have at least 25% of the right to vote according to their share capital.
At least one family member or kin is involved in managing the business.
The people who established the business and their family members have the majority of the voting power.
Because of these fairly broad criteria, setting up a family business doesn’t differ all that much from establishing any other type of business. Your first steps will be to decide on a business structure and register yourself on the UK government's website.
One thing you should be mindful of is tax legislation. The guidelines for employing family members are as follows.
You must pay them at least the national minimum wage (£9.50).
You need to pay family members roughly the same amount you would pay non-family members for the same task.
You need to pay National Insurance if a family member earns at least £242 a week.
If you’re a limited company, you can make a family member an employee, shareholder, director, or all three. Shareholders are allowed to receive dividend payments, which are taxed at a lower rate than income tax.
If you employ your children, you must either pay them at least the national minimum wage (if they’re 16 and over) or employ them as an apprentice.
If you want to involve your school-age children in your family business, even on a casual basis, there are several important factors to consider.
Children younger than 13 can’t work in your family-run business.
Teenagers between the ages of 13 and 16 can only work part-time, and outside of school hours.
Most local authorities require you to obtain a work permit before employing a teenager under 16.
Family-run businesses also have to navigate family business inheritance tax, which comes into play when passing your business to a successor. It’s possible to get up to 100% relief from this tax, but that depends on your business structure.
Pros and cons of family business
What are the advantages of the family business structure? And what are potential challenges of running a family business? Let’s take a look.
Advantages
Family-run businesses tend to be relatively stable, because the leadership of the business usually correlates with an individual’s position within the family. Because of this, leadership in the business tends not to fluctuate too much, and older family members accumulate experience and advice that they can share with younger generations.
Members of a family business tend to be very committed, since the needs of the business and the needs of the family are often interlinked. This commitment can also lead to stronger customer relationships, and a better understanding of the business itself.
Family-run businesses can be very flexible, even if roles are clearly defined. Often, family members will take on tasks outside of their normal duties.
Family businesses can be more comfortable work environments. Since family members are generally very familiar with each other, taking a role in the family business can be less of an adjustment than starting a new job in an unfamiliar environment. Family members also tend to be more supportive and empathetic.
Challenges
Families can be volatile, and when tempers flare, conflicts arise. These conflicts can affect your workplace and take a while to resolve, and the lines between business and family relationships aren’t always clear. Blurring the lines between business and family matters is a real possibility that takes work to avoid.
There’s also potential for nepotism in family businesses. Promoting unqualified people to senior positions just because they’re family is bad for your business, and sometimes happens when people are afraid to offend family members.
Feedback can become complicated in family businesses, because relationships are much more personal. Giving feedback or constructive criticism to a family member can feel uncomfortable when you have a close personal relationship.
Finally, the flip side of family-owned businesses being flexible is that they can lack structure. Family businesses often operate on trust, but need to take care to implement clear hierarchies and rules as well. This is especially true when planning their succession strategy.
Knowing the pros and cons of family business is important when deciding if running a family business is right for you. Should you decide to take the plunge, here are some tips to help you run one successfully.
Run your family business effectively
Always be communicating
Constant communication is key to making any relationship work. And, in a family business, there are two sets of relationships at play: relationships between coworkers and relationships between family members.
Because you’re family, it’s sometimes easy to assume that expectations and ways of working are clear. But it’s always worth clarifying. When you’re at work, try to communicate with your family members as you would with any other colleague.
When you communicate openly and often, differences in opinion may arise. But if your decision-making is informed by these multiple perspectives, this can be beneficial for business rather than harmful.
Define your boundaries
One of the potential disadvantages of running a family business is having to deal with personal issues between family members that are impacting their work. Running your business will be much harder if personal matters bleed into the workday.
It’s much easier said than done, but drawing a clear line between a family matter and a business matter is essential to the success of your family-run business.
When at work, treat everyone as a colleague and try to forget their family status. For example, it’s important to listen to your children’s ideas instead of dismissing them because you’re the parent and you know best. And at the dinner table or at family gatherings, try to avoid talking about work.
Keep it formal
It’s also important to ensure that any agreements you make are formal and legally binding. Every decision regarding things like job responsibilities, stakes in the business, or contracts should be properly documented.
Family businesses can be reluctant to formalise these things because it can imply a lack of trust between relatives. But writing things down prevents ambiguity later. So-called ‘handshake agreements’ leave room for dispute and loopholes that can create more bad blood later.
Part of formalising decisions is declaring who the decision-makers are. It’s unwise to have long family discussions about every aspect of your business, as this will quickly have a negative impact on productivity. And you can’t force employees to report to you before every decision, or you’ll risk alienating them.
Clearly define which decisions you have to make and which decisions employees have the autonomy to handle themselves.
Hire from the outside
It should go without saying, but running a family business doesn’t mean that only family can work there. In fact, it’s usually a good idea to bring in outside help. You need employees who have the skills to work in and run your business, and there’s no guarantee that family members will have those skills.
Also, family members might have tunnel vision when evaluating the business, each other, and their strategies. Outside hires are less likely to have the same biases and emotional attachment that family members do. So if you want to introduce fresh ideas or get an honest picture of your business, an outside hire could be just the thing.
Treat everyone equally
If you’re going to have both family and non-family employees, it’s important to make sure you’re treating them equally. That means showing non-family employees the same level of attention, care and respect that you show family members.
This approach should extend to your customers as well. One of the reasons people choose to shop at family-run businesses is a perception that those businesses are more hospitable.
When you treat everyone like family, you set the standard of service higher. Increase the value you offer customers by taking the time to remember their names, preferences and habits. Developing a familial relationship with your customers strengthens your status in the community and helps you acquire regulars.
Have open dialogues
When you have younger members of the family working at your business, it’s natural to assume they are its future (like 50% of UK business owners do). But before making any decisions based on such assumptions, you should first check to see if everyone’s on the same page.
It might be that your child isn’t interested in continuing the business. That’s a good thing to know as early as possible, so that you can prepare a backup plan. Even if they enjoy working for the family business, the conversation is worthwhile.
Talking to your children, or indeed any employee, about their role in the business helps you understand their motives for working for you, which helps you make sure their needs are met in the future. Additionally, knowing that their presence is voluntary and that you respect their desires will make your family employees feel truly valued.
Save time where possible
When you run a family business, it’s a big time commitment. And even though you get to see your family on a daily basis, it would be nice to have more free time to spend with them outside of work.
Luckily, there’s a lot you can do to save time. It starts by identifying and prioritising tasks so you can tackle them one-by-one. In terms of actually doing these tasks, automation is your best friend. Need to manage your inventory? Store your receipts for accounting? Track customer orders? You can automate all of that.
With a system like the SumUp POS, you have a platform where you can access all these services and more on one screen. And you can always add or subtract features, so you’re only ever paying for what you use. Contracts are flexible too, since you can purchase a monthly or annual licence.
Tired of spending hours billing customers and managing those bills? SumUp Invoices let you do it in minutes. Instead of painstakingly filling in every field and sorting through a mass of papers, bill clients with just a few clicks.
You can issue invoices from the SumUp app; the templates are already there, and we even calculate VAT for you. Just enter a few details about the transaction, and you’re done. You can see the status of your invoices anytime, which means you can also track who has and hasn’t paid yet.
You can also save time managing your money with a free Business Account. Sign up online in just a few minutes, and your SumUp Business Account is ready. With it, you’ll have 24/7 access to your business funds through the SumUp app, and any money you make from transactions will appear the next day, even on holidays and weekends.
It’s also a snap to make payments yourself thanks to free and instant transfers anywhere in the UK. That makes dealing with suppliers and business partners a lot easier. Every Business Account comes with a complimentary Mastercard, which you can use anywhere and for ATM withdrawals.
Summary
Starting a family business is similar to starting any other business, but it can pose unique challenges. For example, when working with family members, personal disputes can easily spill over into your professional life.
But running a family business can be extremely rewarding; there’s a reason there are so many successful ones in the UK. Once you know the challenges of family business, you’ll be prepared to avoid them and succeed as well.
Was this article helpful? Then learn more about being a successful family business owner on our Business Guide.
