The UK Family Business Sector in 2020
By Martin Kemp, Family Business Research Foundation
22nd September, 2020
Family ownership is common among the country’s largest firms. Earlier this year, the Research Foundation commissioned research consultancy, Repgraph, to take a closer look at these firms. Their report found that there are 1,551 registered companies in the UK with turnover greater than £500m, and almost one in five (19.8 per cent) of the largest UK firms are family-owned. Most of these are UK family-owned (i.e. owned by UK citizens), but many are not; around 41 per cent of large family firms are owned by non-UK families.
There is some evidence that family ownership among large firms in the UK has stayed broadly stable over recent years. For example, Repgraph found that just under three-quarters of the largest family businesses identified in an earlier study (in 2016) were still family firms in 2020. Most large family businesses maintained their turnover over this period and were not sold, suggesting a degree of resilience to fluctuating economic conditions.
A new report by the Research Foundation, The State of the Nation: The UK Family Business Sector 2019–20, provides fresh evidence on the UK family business sector. The report is published annually and is now in its fifth consecutive year. It has become a key source of evidence on the size and impact of UK family companies and is relied upon by decision-makers, as well as the family business research and advisory community.
According to the latest report by Oxford Economics, there were 5.1 million family-owned businesses in the UK in 2018, though around four out of every five of these were micro firms with no employees. There is considerable diversity within the family business sector in the UK. Whilst it is true that family firms are far more prevalent among SMEs than larger firms, around half of medium-sized firms with between 50 and 249 employees are family-owned.
Multi-generational businesses are more common as firms increase in size. Evidence from the UK Government’s annual Small Business Survey indicates that almost two out of every five medium-sized family firms pass down through at least one generation of the same family. And across family SMEs of all sizes, around one in twenty are in at least their third generation of ownership.
Nonetheless, family-owned businesses face many barriers to their success. Those family SMEs interviewed in the Small Business Survey in 2018-19 reported a number of obstacles to success. Almost half cited competition, regulation and red tape as common challenges. Other commonly cited obstacles were taxation, late payment and the recruitment, training and retention of staff. The last of these was most likely to be perceived as an obstacle by larger family SMEs and was most commonly identified as an issue by firms in the health and social work sector.
To date, little is known about how COVID-19 has affected family-run firms in the UK. Our State of the Nation report includes some preliminary analysis of the likely impact. Oxford Economics estimates that, between February and May 2020, family firms’ output is likely to have declined by 30 per cent.
Whilst most family businesses will have continued to trade, many others are likely to have temporarily closed or ceased trading for good. According to evidence from the UK’s Office for National Statistics, businesses operating in the accommodation and food services sector experienced the greatest loss in output between February and May 2020, contracting by around 92 per cent (ONS, 2020). Firms in the arts, entertainment and recreation sector have been the second hardest hit, with their output contracting by more than half in those three months.
Whilst most family firms are SMEs, many of the UK’s largest firms are family owned. The family business sector in the UK is highly diverse, resilient, and one of the key pillars of the UK economy. However, the COVID-19 pandemic has caused a serious crisis in UK economy, and society and family businesses of all sizes and across many sectors will have been affected. New research is needed to help us better understand the impact of the pandemic on this vital part of the economy.
The full report by Repgraph, The Largest Family Businesses in the UK, was published by the IFB Research Foundation in May 2020 and can be downloaded here.
The IFB Research Foundation’s latest sector report, The State of the Nation: The UK Family Business Sector 2019–20, was published in September 2020, and can be downloaded here.