No lament for the end of the family-run firm

Kathleen Brooks
THE days of family-run firms could be numbered according to a survey carried out by Haines Watts, the accountancy firm. It found that out of the 650 small business owners it asked, a paltry 16 per cent responded that they planned to hand control of their business to another family member.

So, what has led to this change? William Townrow from Vestra Wealth says that lifestyle choice is a major factor. “You get entrepreneurs who come to the end of their careers and want to reap the fruits of their labour.” Townrow also points out that strong businesses can attract high bids which can be too good to turn down: “People are willing to pay good money for businesses, so more people are happy to cash in and use that money to fund a venture started by their son or daughter rather than pass their own business down the family line.”

Another reason for the demise of family succession is that it doesn’t fit with a modern economy, whereby firms have to be at their absolute fittest in order to survive an exceptionally tough marketplace. David Fort, managing partner of Haines Watts, says that these days businesses need the best people to survive: “This trend could help businesses, since they don’t need to take on a family member if they aren’t that good.”

Although the days of passing a firm down the generations might be over, changes to the tax system could mean that people will be less likely to sell their businesses, says Jamie Shepherd, chief executive and owner of Courtiers, the investment services firm. “The trend to build up a company and then sell it rather than pass it on was created by the UK’s tax system. There was a low rate of capital gains tax (CGT) and this encouraged people to sell. But this could reverse if there are tax changes.”

Shepherd says that as CGT goes up and pension relief for high earners is scaled back, more people may consider retaining their shareholding in the company, as this could be the more tax efficient option: “You could still be a majority shareholder, along with your family, but you might not run the day-to-day business of your firm, which would be passed over to other qualified staff members.”

In future entrepreneurs might stay on because of tax – not an inspiring reason.