Family businesses have continued to show resilience, innovation and entrepreneurship during the last year with the exit from the pandemic being slower than was hoped. Many businesses have continued to do very well and managed to operate throughout, but with the Federation of Small Businesses recently reporting that almost 20,000 Scottish businesses failed during a year in the COVID crisis, it is clear that the pandemic has been unsustainable for many.
I wear a lot of hats at AAB, two of which are leading a team that supports our family business clients; and Corporate Finance partner, where I help clients to grow their businesses through investment, acquisition or refreshed strategic thinking. These two roles don’t come together as often as I’d like, as family businesses can often delay decisions that are more strategic than operational. Why this is the case is an interesting question, and it varies from business to business. It could be a reluctance to change, or a desire to remain what we would call ‘a lifestyle business’, or the family dynamics may make the conversation seem too difficult.
Family firms are the engine room of the Scottish economy, and they continue to contribute significantly to employment, economic output and the creation of wealth, on top of making a real impact on the communities in which they are located.
Family businesses come in all sorts of guises, with varying internal challenges and external market forces. But one thing they all have in common is that eventually someone else will need to take the reins. While it’s possible that the business could be sold, most know with certainty that succession will be passing to the next generation. So, with such inevitability why is this a subject that often isn’t discussed until the eleventh hour?
Business Owners will most likely be aware of the important Inheritance Tax (“IHT”) relief currently available on the value of their businesses. Business Relief (“BR”) can relieve the full value of the business and it has long been recognised that the policy objective behind the relief is to prevent the breaking up or sale of businesses on death. Whilst this may be hugely advantageous for all businesses, the benefit is perhaps most keenly felt by family businesses where the legacy is as much about heritage and history as it is about a continuing trade.
Scottish family businesses are the engine room of the Scottish economy with many of them having been around for generations. Recent studies have shown that around 65% of all private businesses in the UK are family controlled and that family firms account for around 25% of UK GDP, over 45% of all UK employment and create significant wealth too.