Family Business Scale-ups: Breaking Barriers to Growth
Insight piece
Taxation: A real threat to sustainability and investment Changes to Inheritance Tax and Business Property Relief (BPR) are major concerns for family businesses, who are more likely to have wealth tied up in tangible investments than liquid cash. The proposed 20% Inheritance Tax charge is an “existential
Key insights
threat” that forces a cycle of “double taxation”, says brewer Lees-Jones.
Financial conservatism and taxation dynamics
Similarly, as brewer JW Lees, managing director William Lees-Jones says that while non-family firms “get caught up in the deal mentality, our number one goal is to remain family-owned and independent. We don’t want to pass on a business with debt; we’re building for steady growth” Like Bennie, W&R Barnett has also scaled by buying other family-run firms. W&R Barnett has never acquired from private equity: “We have bought first-generation family entrepreneurs through to second or third-generation family businesses that tend to be well-run, with little or no debt and long-term thinking,” as chief executive William Barnett explains. “When that next generation takes on a business, they often come in with new ideas, creating a growth spurt that changes the business and how it operates.” By contrast, Strathberry, one of the UK’s first- generation family businesses, hired external candidate Martin Byrne as managing director and took on minority investment, from BGF, in 2021. “BGF provided a framework for growth and smart capital rather than just the money,” Hundleby says.
“It could force family businesses to refinance every generation,” he adds. “It’s our biggest challenge to growth. Foreign firms will have a material advantage over British family businesses as we end up with double taxation. Consequently, we’re currently not getting involved in some of the larger capital projects that we would normally. The government’s decisions are holding us back.” At Bettys & Taylors, Barnes says since IHT changes were announced, “for the first time in years, we have felt like the ground has shifted beneath us. The stability that we took for granted has gone.” Potential property investments now need a different type of scrutiny: “shareholder discussions are very different to just two years ago – we are more focused on ensuring resilience, being cautious in our appetite for risk and new ventures and focused on remaining flexible in the face of potential pressures.” The policy uncertainty is very unhelpful for family businesses like ours that thrive on stability and long-term thinking” reinforcing the sentiments of many surveyed for this report on how vital long-term consistency of tax is imperative to drive confidence and investment commitment in our established mid-market and scaling family firms.
First-generation family businesses are more likely to take on external investment, while legacy firms prefer self-funding. Family businesses often prefer zero debt; deploying capital with discipline and investing through the lens of long-term sustainability rather than quarterly demands from backers. “There is a profound cultural preference against external borrowing,” says Barnes, at Bettys & Taylors. “Even where there is a compelling case for growth through debt, the family shareholders remain unified in their preference for self-funding and caution.” Debt-free Bettys & Taylors operates a four times dividend cover, and aims to retain around 75% of profit within the business. “As a family we favour controlled, steady growth, recognising that bigger is not necessarily better. Our priority is to remain a thriving, independent family business for generations to come.”
Page 68
Made with FlippingBook - professional solution for displaying marketing and sales documents online