2021 Year in Review: Family Business

Family businesses have continued to show resilience, innovation and entrepreneurship during the last year with the exit from the pandemic being slower than was hoped. Many businesses have continued to do very well and managed to operate throughout, but with the Federation of Small Businesses recently reporting that almost 20,000 Scottish businesses failed during a year in the COVID crisis, it is clear that the pandemic has been unsustainable for many.

Looking back on 2021

2021 continued to be a challenging year for family businesses, the slow easing of COVID restrictions as well as Brexit, pricing and supply chain issues have all put pressure on what was already an uncertain time for some. However, we have seen our family clients continue to adapt and innovate in ways to ensure they are retaining staff and continue to operate their businesses. Be that the use and advancement of technology to increase productivity or ensure the team is brought together in a different way.

Retaining and recruiting team members

Retaining and recruiting good people is always a priority for family businesses, many seeing their team as an extension of the family. To attract and retain talent, we have seen many more clients looking at share-based incentives such as Enterprise Management Incentive share option plans or Growth Share plans. Giving the employee a stake in the business can bring further loyalty and the alignment to deliver on the longer-term strategy. However, bringing non-family equity holders into the business can sometimes be a step that many family owners struggle to take.

This year has also seen further investment in staff safety and wellbeing with the return to the office and other workplaces as restrictions lifted. Many family businesses are now adopting hybrid working policies which is also a further benefit to engage and retain employees.

Succession plans

Lots of businesses put succession plans on hold during the height of the pandemic, with owners reluctant to hand over the reigns during such uncertain times. As the economic recovery continues, we are seeing many family businesses turn their attention back to this.

Reorganisations and restructuring are taking place to allow the older generation to take a step back and pass over the ownership and responsibilities to the next generation. There are also more family businesses looking at exit opportunities as well as private equity investment depending on what is the right step for that business as well the appetite of the younger generation. Where an exit is anticipated, the use of family trusts and Family Investment Companies are coming into play when it comes to passing down the wealth to the next generation.

What does 2022 have in store?

There will be a heightened focus on environmental, social and governance (ESG) policies and actions as the UK presses ahead with its commitment to net zero greenhouse gas emissions by 2050. Therefore, changes and innovation to the way some family business operate in order to meet these sustainability goals will be needed and it is something that family businesses want to take responsibility for. Family businesses are significantly involved in the place in which they do business and want to make a positive impact and do as much good as they can in terms of environmental and social impact they can have on their local communities and further afield.

Cash continues to be the top priority in many businesses and that especially rings true for the family business, the impact of the end of some COVID support measures as well as the repayment of rates deferrals and loans will mean much more pressure on cash and profitability.

Finally, we have seen little of the expected tax increases from the recent budget statements, but the expectation is that this will be inevitable. It is likely that any concerns over increased Capital Gains Tax rates will accelerate any succession and exit plans for our family business clients.

AAB’s dedicated family business team have supported their family clients with significant challenges over many years and in 2021 we continued to see them react and adapt to the difficult environment. We look forward to supporting them again in the upcoming year as they continue to embrace the changes and make a significant contribution to the ongoing economic recover of the nation.

If you would like more information or guidance on issues relating to family businesses, please contact Lynn Wilson, Director and a member of AAB’s dedicated Family Business Team.

Find out more about AAB’s family business team here.