How Do I Scale Up a Traditional Family-Owned Business?

Family-owned businesses in the UK made up 85.9% of all private sector businesses but the majority are on the smaller end of the scale. Three-quarters of all family businesses in 2020 were sole traders with no employees, and a further 21% had 1-9 employees. Part of the reason is that, despite having several advantages compared to other companies, growing a family business presents its own challenges.

These entities typically operate with trusted family members who keep overheads low and allow for rapid decision-making. However, scaling such businesses means making big changes. Access to capital and professional management can be limited, and the very strengths that have served well at a small scale can become limitations as the business grows.

Here Haines Watts High Wycombe Director Kapil Davda explains how family businesses can take advantage of their unique strengths to grow and scale effectively. 

Expanding skills within the business 

Family businesses often have a head start when it comes to hiring – by drawing from a pool of trusted relationships, they can get off the ground quickly and add capacity as needed. However, this will only get you so far.

As a business scales, so too must its pool of expertise as new functions become more specialised and the pressure on different areas grows. This may require expanding beyond the existing skills of the immediate family, bringing in external resources, insights or experience.

• Training: Investing in the development of current family members can refine existing skills and introduce new competencies crucial for growth.
• Outside Hires: Bringing in external professionals can inject fresh perspectives and specialised knowledge that the business needs to scale effectively.
• External Experience for Family Members: Encouraging family members to gain experience outside the family business can broaden their understanding of different business cultures and strategies.

Formalising key processes

Working with family can be a terrifically efficient solution to the early day decision-making required in a business. With strong relationships to ground the business and longstanding communication styles, the business can race ahead.

But one of the unique challenges family businesses face is the transition from informal communication and decision-making to formalised processes. When a handful of family members can make swift decisions around the dinner table, scaling up means that these processes need to be documented, systematised, and trackable.

This formalisation not only ensures that new non-family employees can understand and follow procedures but also allows for the monitoring and continuous improvement of operations, crucial for maintaining efficiency at a larger scale.

Scaling what makes you special

Family businesses often have a strong, implicit culture and set of values that have never been formally articulated. As you scale, it's vital to crystalise what makes your business special.

This isn’t just about branding; it’s about embedding your core values into the hiring process and ensuring that new recruits, whether family or not, resonate with these principles. This cultural codification helps maintain the essence of the family business even as new layers of management and staff join the organisation.

Structuring for the future

As family businesses expand, the informal understandings that once sufficed can lead to confusion and conflict. These can quickly turn into resentment and clashes that can threaten the foundation of the business. For that reason, it’s crucial to formalise the structure of ownership and clearly delineate roles and responsibilities to make sure everyone feels secure and recognise their roles and stake:

Ownership stakes

Defining who owns what percentage of the business can prevent disputes and ensure that everyone feels recognised for their contributions. By allocating shares and controlling interest early on, you can create a stable structure that gives stakeholders more clarity about their position:

• Clarifying decision-making processes and controlling interests within the business
• Providing certainty over growth and capital allocations according to share classes
• Formalising processes for dispute resolution and planning

Role clarification

As the business grows, roles that were once fluid need to become more defined to avoid overlap and ensure accountability. While it reduces short term flexibility, it has a range of advantages for the future:

• Once in a formal role, team members can dedicate themselves to specialisation and becoming domain experts
• Clear responsibilities create stable boundaries for collaboration and accountability, without stepping on toes
• With functions clearly distributed, you can accurately track performance and output by department.

Succession Planning

One of the most complex decisions for any owner of a family business is when to step away. Letting go of something you have poured yourself into is an emotional decision, but at some point, scaling your business will require leaving space for new ideas and leadership.

This requires not only careful selection and preparation for the next generation, but also the right structures and control to pass on control in a managed way, providing space for them to grow while retaining a degree of oversight.

An effective way to do this could be by setting up a family holding company. In this arrangement shares are distributed among other relatives, often children, but with decision-making power vested in the directors.

Scaling your family business with confidence

Family businesses play a key role in driving the economy forward, as well as bringing growth and opportunities to their communities. At Haines Watts, we’re dedicated to making sure every business can reach their full potential, leveraging their unique strengths to scale and succeed.

We’ve worked with thousands of family businesses through every stage of their lifecycle to help them thrive. Our advisors can help you hone in on what works and make the most of it.  Get in touch with us to find out how you can build a bright future for your family business.