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Law for Business

Knowhow - guidance - precedents

07 NOV 2012

Family business and the recession 2011 - National Family Business Report

Against the backdrop of the toughest economic times in living memory, family businesses seem to be not only surviving, but thriving, according to our recently published 2011 National Family Business Report prepared in conjunction with the University of the West of England.

Clearly many businesses have not survived the recession in family ownership. However the message from the report is that for the family business sector as a whole the outlook is bright, with over 50% reporting that they had increased both market share and profitability during these tough economic times.

This is set against a perception that non-family owned competitors are struggling. In the survival of the fittest, family businesses have come out fighting. Equally family businesses have proved well able to survive the credit crunch with over half of respondents being concerned about raising finance or the availability of funds. For those working in, or owning family businesses, this may not come as a great surprise. Family businesses tend to have their eye on longevity and sustainability for future generations, focusing on reinvestment of profits and low gearing.

The unique characteristics that family businesses exhibit - in a word ‘familiness' - are also confirmed by the survey. Whilst the majority of respondents confirmed that the primary aim of the family business was to put bread and butter on the table of the immediate owning family, the survey suggests that family businesses have a strength and depth of vision way beyond immediate revenue building. A sizeable proportion of respondents pointed to family orientated aims such as building a legacy for future generations as key drivers for their business. The sense of custodianship often felt by the current generation gives them a reason for survival beyond their own immediate needs. These characteristics appear to have provided family businesses with the financial shock absorber needed to survive the recession and outperform their non-family owned counterparts.

Familiness can also be seen in the high degree of flexibility in the decision making process of family businesses. Partly this is reflected in a fluid and flexible decision making process. Also most respondents recognised the influence of family considerations on decision making. Only 37% of family business owners said that business factors always came first. Family businesses therefore appear to be thinking and strategising in a different way to their non-family owned counterparts. We believe that the holistic nature of their decision making, when coupled with a long-term strength of vision, provides a more solid, rounded basis for decision making and helps to explain why family businesses have proved so adept at surviving the credit crunch.

In addition to charting the progress of the family business in the current difficult economic waters the report also looks at perennial family business themes such as succession (considered separately in this edition) and governance (to be looked at later).

For further information, please contact Nicholas Smith, Partner and Head of Family Business at Veale Wasbrough Vizards, on 0117 314 5470 or at nsmith@vwv.co.uk.

If you would like a copy of the report, please contact Charlotte Iles on 0117 314 5367 or at ciles@vwv.co.uk or alternatively visit our website www.vwv.co.uk.

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