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Family businesses can play a leading role in the UK’s future growth

Forcing the sale of family businesses would push many into the hands of owners who would simply cut factories and jobs with a knock-on effect on our communities. Such a policy would be an own goal, writes the IFB in response to Professor John Van Reenen.

There has been some debate over whether family businesses are pulling their weight when it comes to providing the growth needed to drive the UK economy forward.

My opinion is that the family business sector is one of the country’s best hopes for future wealth generation and the statistics speak for themselves. UK family firms represent two out of every three businesses in the private sector, employ 9.2 million people and generate £1.1 trillion (€1.31 trillion) in revenues each year. In spite of one of the fiercest recessions experienced, the family business sector has increased its revenues by 6% since 2007, according to independent research by Oxford Economics – a testament to the resilience of family firms when confronted with economic headwinds.

Family-owned firms not only constitute the majority of our nation’s small and medium enterprises, but also form almost half of the mid-sized business sector where the government expects much of our growth to come from.

The strength of this part of the family business sector was recognised in a recent report on mid-sized companies (revenues between £25 million and £500 million) by Middlesex University Business School for the Department for Business, Innovation and Skills, where family firms were praised for their “steady performance” and “prudent financial management”. Just 32% of family businesses exhibited perceived weaknesses, compared to 63% of non-family companies, and were more likely to be planning management improvements than non-family counterparts.

There is also every reason why the government should be supportive of the family business sector – family firms have relatively higher profit margins and stronger balance sheets, which give them more scope to invest, providing they are confident to do so. In tougher times, such as now, family firms are also experiencing lower rates of company dissolution, maintaining employment.

The general ability of family firms to adhere to a long-term investment plan and avoid the temptation to over-borrow has made them well placed in the downturn. Long-established family businesses have seen recessions come and go – they just keep their heads down and carry on. Many of the most successful UK family firms also avoid the easy route of selling the business for a short-term gain and choose to be long-term stewards of their companies.

The sector’s critics have called on reducing the role of family firms – forcing the sale of family businesses would push many into the hands of owners who would simply cut factories and jobs with a knock-on effect on our communities – similar to what happened to Cadbury since it left family ownership. Such a policy would be an own goal.

Grant Gordon, director general, Institute for Family Business.

Grant was writing in response to recent comments made by Professor John Van Reenen.  

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