Reluctance to take calculated risk can inhibit growth of private businesses

“FAMILY-OWNED businesses are very different to other private businesses – decisions are not purely geared to profitability and there are issues around maintaining harmony within the family.”

So says Ian Beaumont, KPMG’s head of family business in the North. And he should know – he grew up with a father who led a family business.

“So I was raised in that environment and know the issues…Family business is very emotional, transcends a corporate entity’s goals of wealth and profit and is never far away from the family Sunday lunch. It is part of the family and can be run for reasons of philanthropy or status in the community and so the goals are different.”

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Family businesses are by no means small businesses – many of these private businesses, particularly it seems in Yorkshire, have passed through several generations to grow into significant employers with impressive turnovers and real standing within their communities.

James Fawcett, corporate partner at law firm Gordons, cites NG Bailey and JCT600 as just two of many examples of strong family businesses in this region.

But, he says, they have also been very prudent in the way they have grown.

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Fawcett agrees that the mindset of a family business owner, whatever the size of the business, is different.

“The difference in mindset comes with having something where you feel you are a custodian or guardian of the family wealth,” he says.

Beaumont adds: “No-one in a family business wants to bet the ranch. Risk taking is quite difficult, particularly for the second and third generations onwards.

“The first generation is the original entrepreneur and, in some cases, more willing to take calculated risks.

“That level of prudence can mean that when it comes to driving growth, there is often a reluctance to bring in external investment such as private equity or a significant debt burden.

“Being a family business does cut off some areas of funding because of the desire not to give away equity,” says Beaumont.

He adds that even if they can get comfortable with giving away equity they are not driven by the same shorter term returns required by many investors, such as private equity.

But Fawcett says that rather than ruling private equity out altogether, family businesses should take the time to find the right partner for that business.

“Spend time and get to know the people who will be investing and make sure that they know and understand the culture.

“Alternatives like the Business Growth Fund are interesting as they have a long-term approach and tend to leave more control with the family – that is an interesting option.”

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