A policy perspective
This blog was written by Y-PERN Policy Fellow, Peter Mukarumbwa. Peter is based at the University of Bradford and is responsible for research, policy and engagement support in respect of the Small and Medium Sized Enterprises (SMEs) economy.
There are an estimated 5.2 million family-owned businesses in the UK, consisting 85% of all private sector firm and these employed over 14.2 million people in 2019. Small and micro family businesses (fewer than 50 employees) dominate the sector constituting 99,6 per cent of UK family firms.
The Yorkshire and the Humber region constituted 7.3% of all family firms in the UK in 2019. Yet, the rate of business creation in Yorkshire, the Humber and North East was consistently below the national average between 2016 and 2021.
In addition, ethnic minority groups have low representation in family business leadership roles in the UK, with only 11 per cent being directors or partners. Family firms nonetheless contribute 28% of UK GDP (£598 billion) which equates to 42% of the private sector’s contribution, hence their significance to the UK economy cannot be overemphasized.
Despite recent research efforts to capture the essence and dynamics of family business, there is consensus that studies which focus on management of family business in the UK and specifically in the Yorkshire and Humber Region are scanty.
At Y-PERN, we looked at how policy in the region could better support family-owned businesses.
The aim of our study was to offer useful insights on innovative ways in which family businesses in Bradford specifically and the Yorkshire and Humber region in general, can engage in business support, break barriers to family business growth and to assist with advice on management and sustainability of family firms.
The transfer of firms between generations and issues of growth and development in face of conservative management approaches are recognised as significant issues for such firms.
Bradford is significant given the high concentration of entrepreneurial businesses of Black, Asian and Minority Ethnic (BAME) descent which are family owned.
The evidence reported here is based on a meta-analysis of the existing data and reports available related to family businesses, drawing on both published reports and publicly available databases. The selection criteria included evidence published in the last 10 years (2015-2025), limited to the United Kingdom (UK), England and with an emphasis on the Yorkshire and Humber region. It is hoped that the evidence will inform targeted policy measures to overcome challenges faced by family-owned SMEs in Yorkshire and Humber region.
Barriers to growth in UK SMEs family businesses
Family-owned businesses are unique in that they blend business and family systems; they often face unique challenges that could affect their long-term sustainability and profitability. Whilst several themes emerged across this research, the three major issues that were identified are: 1. access to finance, 2. business succession planning and 3. uptake of artificial intelligence (AI).
Access to finance
Compared with their non-family counterparts, family-owned businesses in the UK were less likely to apply for external finance and a larger share of family SME applications are usually rejected. This lack of access to external finance has been noted as a major impediment for family businesses success which stifles their ability to invest in innovation and develop new products systems and processes.
Business succession planning
Evidence suggests that most family businesses in the UK do not have a succession plan in place for their business. For instance, of the 67% of family business owners who plan to leave their businesses in the next 10 years, 36% have not discussed the succession plan with their children/successors and potentially more worrisome is the evidence that 29% of these children are not already involved in those businesses, meaning that the succession and continuation of approximately 20% of all family businesses is uncertain.
AI adoption
Recent research has shown that in the initial stages family businesses have tended to be sceptical about AI and have been slow in adopting this technological innovation. This extends the risk of conservatism sometimes seen in family-oriented firms. This is despite the vast opportunity that AI provides for business growth. A recent study indicated that 55% of family-owned SMEs do not see the relevance of AI in their businesses. There are many reasons for resistance to technological adoption in family businesses which include, but are not limited to: fear of change, legacy, financial reasons and time, but it is clear given the pace of AI’s impact and update, that many family firms are at risk of being left behind in the growing AI enabled landscape for business.
Acting on the evidence
Awareness raising and education to strengthen the SME financial ecosystem by government and other public sector bodies that represent SMEs is likely to improve family-owned businesses access to finance. Most importantly, financial institutions working closely with other key stakeholders must offer a range of financing offers targeted at different stages of firm growth and the expectations of different businesses with varying attitudes to and profiles for risk. Local and regional authorities have a clear role here, in supporting firms in understanding the financial ecosystem and in ensuring business support packages offer a range of financial options to support the differing needs and expectations of family firms.
Businesses themselves need to develop an effective succession plan which is well managed and will offer growth opportunities for the next generation of business owners, employers, leaders, and employees.
It is important that SME family business owners are made aware of the need to plan for succession. Universities may be able to provide some help here. The Help to Grow: Management programme run by the Business Schools awarded the Small Business Charter and funded by central government has become one potential route for this with next generation managers representing a significant proportion of attendees. Investment in support for business growth such as Help to Grow, be that local, regional or national, need to acknowledge succession and transition of ownership for firms as part of their programme. Taxation policy also needs to support family firms in their succession planning to allow smooth transfer of ownership without imposing any adverse financial impacts on the company.
There is also a clear need to develop digital skills, diagnostic and capability development and support technological adoption tools to assess current and future digital skill needs, provide advice to firms, and signpost all SMEs to appropriate training and support for AI and other innovations. Again, universities have a role in providing guidance and support in new practices in this regard and business support programmes need to be considering digital skills and the impact and value of AI for not just specialist forms but potentially for all business sectors.
Most importantly, family-owned business owners and managers (and managers of all SMEs) should be educated about the benefits of adopting technological tools and AI. It is expected that this will make family-owned businesses more aware of the potential benefits that accrue from AI, data science and analytics.
Y-PERN would like to thank Peter for his research and academic insights.
