How Common are Family Businesses in the UK?

Family businesses make a significant contribution to the UK’s economy and society, a fact that is now well-documented (Ward & Brien, 2022; Trehan, Kemp & Glover, 2020). It is estimated that family firms employed approximately 13.9 million people in the UK in 2020 (Oxford Economics & IFB Research Foundation, 2022). A recent study conducted by the Family Business Research Foundation (FBRF) in collaboration with PwC estimated that family businesses in the UK contributed around £225bn to the UK public finances in 2021 (PwC & FBRF, 2023).

Family involvement in the ownership and management of small and medium-sized enterprises (SMEs)[1] influences business operations and can have an impact on the families themselves. The sheer scale of the contribution of family SMEs to the UK economy highlights the importance of knowing more about these businesses and the challenges they face – for instance, how does close family involvement in a small enterprise affect its operations? And how does owning and running an SME impact on the family and the dynamics between family members?

This research briefing shares some of the results relating to family-owned SMEs from the latest UK Longitudinal[2] Small Business Survey (LSBS). It draws on survey results released by the Department for Business and Trade (DBT) for SME employers. The briefing also uses the LSBS statistics published by DBT for the past five years (2019 to 2023) to examine rates of family-business ownership among SMEs over this period.

About the Longitudinal Small Business Survey

The 2023 LSBS is a large telephone survey of 9,681 owners and managers of small businesses with fewer than 250 employees, commissioned by the Department for Business, Energy and Industrial Strategy (BEIS) and managed by the Department of Business and Trade (DBT) (DBT, 2024a: section 16). The survey is longitudinal – that is, researchers attempt to interview the same firms each year to detect any changes that may occur (DBT, 2024a). The 2023 LSBS included 7,799 SME employers with data-collection taking place between October 2023 and April 2024 (DBT, 2024a).

The latest Small Business Survey report published by DBT (DBT, 2024a) provides detailed results from the LSBS 2023 for businesses with employees, as well as information about the survey design, measures, definitions and methodology used in the survey. It contains details of business performance and the factors that affect this performance, including performance in terms of employment and turnover, exporting behaviour, access to finance, innovation, obstacles to business success, use of business support, training, business practices, and their future plans.

The analysis presented here is based on re-analysis of statistics for SME employers published by BEIS/DBT each year between 2019 and 2023.[3]

How are family-owned firms identified in the LSBS?

The LSBS provides one of the few means of estimating the proportion of UK businesses that are family-owned and run. The survey includes a way of identifying family businesses which are defined as:

“a business where a majority of the owners are in the same family. A business with a single owner is automatically a family-owned business, although a business with no owners is not. ‘Majority’ means more than half, but ultimately, we require the respondent to the survey to interpret this: where a business has more than one working owner or partner, they are simply asked if the business is family-owned and this is defined in the questionnaire as ‘majority-owned by members of the same family’.”

DBT, 2024a: Section 17: Definitions.

This definition is operationalised with two questions which only SMEs with employees are asked:

Family Ownership: “Is your business a family-owned business, that is one which is majority owned by members of the same family?”

Family Management: “Is the person or family that majority-owns your business actively involved in the day-to-day management of the business?”

Source: DBT (2024a)

Businesses without owners (such as not-for-profit or public limited companies) are not assumed to be family businesses.

Key Findings from LSBS 2023: SME Employers

The results from the LSBS highlight some the changing practices among SME Employers over the past 18 months, and some of the obstacles to growth they faced in 2023:

Turnover growth: 40 per cent of SME employers reported turnover growth over the previous 12 months, six per cent less than in 2022. By contrast, 27 per cent reported that their turnover had fallen in the previous 12 months.

Profit: Around four out of five SME employers (78 per cent) in 2023 reported making a profit the last financial year, a similar figure to 2022.

Technology use: In 2023, some 61 per cent of SME employers reported using technologies or web-based software, for example, for selling to customers or managing the business, an 11 per cent increase compared with 2022.

Finance: around three quarters (73 per cent) of SME employers reported using external finance. However, obtaining finance was a common challenge particularly in sectors such as health, education, and arts and entertainment.

High energy prices: High energy prices were a concern for many SME employers with over half (56 per cent) identifying this as an obstacle to business in 2023.

Price increases: 30 per cent of SME employers identified price rises (other than energy prices) as an obstacle to growth. In addition, more than half (55 per cent) of SME employers who had plans to grow their business reported that rising costs had affected these plans.

Regulatory challenges: Understanding and navigating regulations, especially post-Brexit, remains a significant concern; for example, 41 per cent of SME employers identified red tape/regulations and 30 per cent identified the UK’s exit from the EU as obstacles to growth.

Workforce: 28 per cent reported an increase in the number employed in 2023. Going forwards, 25 per cent expected to increase the number of employees in the next year. By contrast, one in ten (10 per cent) expected to employ fewer staff. Recruiting skilled workers was a challenge for many with 40 per cent identifying staffing as an obstacle to growth.

Source: DBT (2024a)

How many SMEs are family owned?

Figure 1 uses the latest available data from the 2023 SBS to show the proportion of respondents who responded “Yes” to the question “Is your business a family-owned business, that is one which is majority owned by members of the same family?” Overall, 75 per cent of SME employers were majority-owned by the person or family who set it up. It is important to note when interpreting these numbers that for the purposes of the SBS, DBT classifies businesses with a single owner or partner as family firms.