Family businesses contribute significantly to the UK economy. For those with multi-generational intent, developing a strategy for next-generation engagement is essential for ensuring the long-term success of the enterprise.
Early exposure to the business can help younger family members understand the family’s values, history and purpose, fostering a shared sense of purpose.
Succession discussions should form part of an ongoing dialogue that acknowledges different views and evolves over time.
Family businesses are the backbone of the UK economy. According to Family Business UK, there are approximately 4.8 million family businesses in the UK, making up 90% of all private firms. These businesses employ around 13.9 million people and generate a turnover of £1.7 trillion, contributing £575 billion in Gross Value Added (GVA) to the economy.1
But what exactly defines a family business? At its core, a family business is one where ownership is expected to pass through generations. In many cases, this involves a single business that is managed and controlled by a family. However, some entrepreneurial families diversify across multiple business interests or establish family offices to manage their enterprises.
For those with multi-generational intent, the question of when and how to engage the next generation becomes pivotal.
This is one of the most common questions posed by founders and senior family members. While “the earlier, the better” is often the default response, the reality is more nuanced. The right timing depends on several factors, including age, maturity, competence and interest in taking on roles by younger generations of the family. When bringing members of the next generation into a family business, roles given to them should always be at the appropriate level commensurate with their skills, experience and capability. In other words, it doesn’t immediately need to be a leadership role.
Recent changes announced in the October 2024 budget will now result in shares in family run businesses becoming part of estates for inheritance tax purposes from April 2026 onwards. This tax consideration adds a new layer of complexity for succession planning. Under current legislation, family businesses that are deemed to be trading would largely benefit from business property relief and/or agricultural property relief. These valuable reliefs have meant that until now, inheritance tax considerations were not part of the challenges to be navigated when planning for succession. With these newly announced changes in the budget coming into force at the start of the next tax year, it has become essential to plan for succession as soon as possible.
Taking the above into account, early exposure to the family enterprise can be invaluable for younger family members. It can help create a better understanding about the family’s values, history and purpose thereby establishing a sense of shared identity and responsibility. In such cases, starting discussions about succession sooner rather than later can cultivate a stronger foundation for future leadership.
Once succession conversations begin, they should not be a one-time event. Instead, there should be an ongoing dialogue that addresses both areas of consensus and differing views among the main stakeholders in the family business. It is important to provide the next generation with the flexibility and freedom to find their own path within the enterprise, should that be what they choose to do. Encouraging the next generation to contribute to the family enterprise according to their interests, skillset and passions is likely to result in a better and more long-lasting solution, rather than fitting them into predefined roles that feel inauthentic.
For senior family members, retirement can be an uncertain time, especially if the business has been the central focus of their professional lives. The absence of day-to-day involvement does not have to mean complete disengagement, however. Many find fulfilling roles as chairpersons, non-executive directors or by overseeing the family office, allowing them to continue to contribute their experience and insight.
For next-generation family members interested in joining the business, hands-on experience is invaluable. Work placements, mentorship programmes and exposure to various areas of the enterprise can help prepare them for leadership roles.
Additionally, family members who gain experience outside the business should not be overlooked. Working in other organisations can equip them with new skills, fresh perspectives and credibility when they eventually return to the family enterprise.
There is no universal best practice for engaging the next generation. What works for one family enterprise may not suit another. A gradual, evolutionary approach to succession planning often yields better results than sudden shifts – especially when unexpected circumstances force leadership transitions.
Ultimately, multi-generational family enterprises operate on a stewardship mindset: leadership is not about ownership but about preparing the business for the next generation.
Navigating next-generation engagement is a journey, not a destination. By fostering open discussions, embracing evolving leadership styles and providing structured mentorship, family enterprises can secure their long-term legacy.
[1] Family Business UK: https://familybusinessuk.org/who-we-are/about-us/
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