By Kirsty Ross, family business consultant for KPMG in Scotland
FIRST Minister Nicola Sturgeon has laid out her vision for the future of Scotland’s businesses as part of her Programme for Government. A £45 million fund will be set aside to help companies with research and development and there will be additional support for graduate entrepreneurs and companies seeking finance.
Support for innovative companies should be lauded. These start-ups are at the cutting edge of new business and represent the future of our economy. However, as the private and public sectors throw their support behind burgeoning firms in Scotland’s exciting seedling business scene, it is important not to overlook existing businesses that play at least as much of a role in growing and sustaining the economy. It’s these companies, operating largely in the background and without the media fanfare surrounding start-ups, that represent Scotland’s real business success story.
Family businesses in particular represent the lifeblood of many communities, from small bakers and butchers to large-scale manufacturers and food and drinks firms. The annual UK Family Business Sector Report found family businesses accounted for 92 percent of all private sector firms in Scotland.
They must be placed at the heart of the growth strategy. These firms last longer than other types of business. According to insurer RSA, in the UK more than half of small and medium-sized enterprises fail within their first five years. By comparison, most family businesses last a generation, commonly accepted as 25 years.
Family businesses are essential for the economy’s success, bringing innovation and substantial employment to key sectors such as food and drink, agriculture and construction. It may sound counter-intuitive, but established businesses bring the greatest innovations as successors take over and put their mark on the company. Like any start-up, family businesses are borne of risk takers and their longevity relies in part on frequent innovation to sustain growth.
Companies that keep things in the family provide vital employment, particularly in rural areas. Family businesses are generally loyal to their local communities and they are committed to the success of those communities and the wider Scottish economy. Scotland must be a great place not just to nurture new firms but also for family business entrepreneurship. This requires support from all sectors and the Scottish Government. Private equity in particular is geared up to support fast growing businesses rather than family firms, where the focus is often on long-term sustainability and organic growth.
There can be a tendency for some lenders and investors to focus on short-term gains via higher interest rates and short timescales, which isn’t the most suitable support for family businesses taking account of their long-term perspective.
Banks, financial advisors and private equity firms would do well to widen their support to long-term ventures which, as history shows, return steady and reliable growth from the family business sector. We need more well-versed family business advisers who can offer innovative and practical help.
Also, local economic development organisations and trade associations should be positioned to offer advice and information to the family business community. The introduction of the Scottish Growth Scheme to boost finance available to companies seeking to expand is a step in the right direction.
Family businesses are the largest unrecognised sector in our economy. Their contribution forms an intrinsic role in Scotland’s present and future prosperity and must be recognised.
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