Michelle Rodgers: Family firms feel the pressure of extra challenges

Published on Sunday 27 November 2011 00:00

RUNNING a family business? Finding it increasingly difficult? That’s not a surprise. According to the Institute for Family Business (IFB), the government discriminates against family businesses. As if they don’t have enough to deal with.

The IFB believes the current tax system penalises entrepreneurial families by preventing owners from obtaining taxation relief when investing in family start-ups. And there’s an additional concern over employment legislation, particularly on the regulatory burden around tribunals and dismissals.

Restrictions in the Enterprise Investment Scheme (EIS) mean that family members investing in a new family business would receive only half the return on that investment compared with a non-family start-up that qualified for EIS relief.

More than a third of IFB members said they would invest more in family start-ups if the law were changed – creating an additional 20,000 jobs.

IFB director general Grant Gordon says it believes the government could help secure hundreds of thousands of jobs for the long term. They are simply asking for a level playing field.

A recent IFB report into the family business sector – The UK Family Business Sector: Working to grow the UK economy – shows that family firms generate revenues of £1.1 trillion a year, and provide 9.2 million jobs in the UK. That’s two out of every five private sector jobs, or almost one in three of total jobs.

Family businesses contribute an estimated £81.7 billion in tax receipts to the UK Exchequer, around 14 per cent of total government revenues in 2010.

And in Scotland the figures are equally significant, with 50 per cent of the private sector workforce employed by family businesses, and almost 70 per cent of all Scottish businesses describing themselves as family businesses.

As if the financial and economic challenges weren’t enough to be dealing with, family businesses also struggle with a whole different set of challenges, many of them less tangible than employment law or EIS relief, but all of them just as difficult.

For Martin Stepek, CEO of the Scottish Family Business Association, these other challenges need just as much attention.

A family business never shuts shop. You can’t escape, and neither can your family whether they are a working contributor to the business or not. Every action of every family member comes up for scrutiny, since it can affect the business, and vice versa of course.

Family business members tend to polarise: the family either becomes very modest and shy because they dislike the limelight of having a business – and therefore a publicly visible entity – associated directly with them, or they go to the other extreme and flaunt or even exaggerate their wealth.

And that wealth, or the perception of it, can equally affect a family. Stepek says marrying into a family business can seem like marrying minor royalty for some people. They expect tiaras and a mansion, if not within the first week of marriage then certainly within the first year. And boy, are they in for a disappointment.

“As reality hits, the slow bitter realisation that the family, whilst wealthy on paper, keep pouring their profits back into the business for the long-term benefit of everyone in it really rankles,” says Stepek.

“Moreover, members of a family business are usually expected to work long hours, be there to open up the head office, be there at the end of the day to close it, do any late unexpected deliveries, and of course turn up in the middle of the night when the alarm mysteriously goes off.

“None of this is considered fair or reasonable to a spouse or partner and, in the long term, loathing for the family business is a common sentiment amongst those who have married into it. Virtually no family business sets out to become that model.”

But starting a business is hard, and when you’re looking for people who can be trusted, who are nearby and who can work for free or cheaply, other family members fit the bill.

It’s how you balance work and family that is key – and you have to juggle that with all the usual business challenges even before EIS and employment regulation issues start to bite.

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Mark Dowe, Dumfries & Galloway

Sunday, November 27, 2011 at 09:21 AM

Whilst sharing the concerns that Michelle expresses in her article for family run businesses it is important we understand exactly why the Enterprise Investment Scheme (EIS). Its purpose is designed to offer a series of tax reliefs by encouraging investments in small unquoted companies for those businesses carrying on a ‘qualifying trade’ on the UK. Redistributing profits back into the business – the best form of business sustainability – is, though, not investment. For those family run businesses that are often sole traders relief is given in the form of capital allowances against new assets acquired such as a motor vehicle acquired for the purposes of the business, new plant in the carrying out of trade operations or even relief against certain decorations and repairs of the family home if that is the location from where the business is run. [ ] Investment in companies that are not publicly listed, such as small family run firms, often carry a high and greater risk. The tax relief is intended to offer some compensation for that risk. The scheme offers both income tax and capital gains tax relief. [ ] I understand that Credit Easing measures are to be announced this week in the Chancellor’s Autumn Statement which will be aimed in making borrowing for small firms less costly and one that will hopefully help to kick-start much needed growth in the economy.

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