Why family firms are the business

My favourite joke about family businesses is set at a wedding. The bride's father claps his new son-in-law warmly on the back and says: "I'd like to show how welcome you are to my family by giving you 50 per cent of my company. Come to the factory on Monday and I'll show you the ropes."

The groom winces and explains he can't stand the noise of factories. "OK, no worries," says his new father-in-law, "We'll find you something in the office." Again the groom winces. He hates paperwork. "For goodness sake!" exclaims the older man, "I've just given you half of a very profitable business! What am I going to do with you?!" And the groom grins: "Buy me out."

While playing on a popular idea of a lazy, short-termist 21st-century generation which fails to respect the hard work, tradition and generosity of their elders, the joke doesn't reflect what's really happening in modern Britain, where more than three million family businesses are going strong and uniquely well placed to ride out the recession.

According to the latest report from the Institute for Family Business (IFB), the sector currently produces more than 30 per cent of the UK's GDP, turning over more than £1,000bn each year and contributing around £73bn per annum in taxes to the Exchequer, which works out at 15 per cent of the Government's tax revenues.

"The vast majority of family businesses are small and medium-sized enterprises and 56 per cent are sole traders with no employees," says the IFB's Director General Grant Gordon. "But it's a common misconception that they're all little 'plumber and son' outfits. We estimate there to be over 1,000 family firms with more than 250 employees, and these alone account for 20 per cent of the turnover of the overall family business sector. Some of the very largest private and quoted UK companies are family firms: companies like JC Bamford (commonly known as JCB), Clarks Shoes and Associated British Foods. Family businesses are most common in the agriculture, construction, service and manufacturing sectors, but they cover the whole waterfront."

The strength of family firms is all in their attitude. Whereas those working in a non-family business might be able to leave their personal values at the office door, those accountable to family members in a work environment are more likely to behave accountably and consequently treat non-family staff better. Gordon argues that people working for themselves and their families are more likely to be motivated, entrepreneurial, socially responsible, philanthropic, flexible and prepared to plan for the long term. As new generations seek to put their stamp on the business they're more likely to innovate. And Gordon says that "they're prepared to take risks but they're financially conservative. They're likely to have saved for a rainy day and borrowed less, which makes them more likely to survive recessions. When they cut back they are more likely to stay true to their core values."

Mark Evans, head of family business and philanthropy at Coutts Private Bank, says: "Looking at the accounts of the finalists for this year's Coutts Prize for Family Business, we saw that they all had low levels of leverage and in a couple of cases had no bank loans at all. Their values tend to mean they've paid bills on time and kept everybody's goodwill, too."

On the downside, the glue holding together a family businesses is the family. They can be torn apart by divorce, sibling rivalry and nepotism. In an ideal situation you'll all be able to shoulder even amounts of work for equal money. Your skill sets will be complementary and everybody will get on all the time. But the reality is that some siblings will work harder or be more talented than others and resentments will necessarily keep bubbling to the surface. Non-family staff may try to exploit cracks in the family relationship to score points or may end up feeling demotivated because they know that no matter how hard they work, the business will end up in the hands of heirs. Those running a beloved family business must accept that their kids – like the groom in the joke – may have no interest in taking the reins. Recent research from the Department of Trade and Industry found that only around a third of family firms tend to be passed onto the second generation and just a tenth reach the third generation, the rest being either sold or closed down.

'I inherited my dad's passion for food'

New Tayyabs restaurant, London E1

Founded by Mohammed Tayyab in 1975

Currently run by his son, Wasim Tayyab, 33

"When my father Mohammed came over from Pakistan to work in the sweatshops of east London," says Wasim Tayyab, "he and many other men from the region had left their wives back home and missed home cooking. My dad shared a flat with 10 other men and they all looked forward to Sundays, which was my dad's day to cook. There was a greasy spoon he stopped at every day, and when the guy who ran it retired, my dad bought the place. My mum moved over to the UK with us and we all lived above the caff.

"Me, my two brothers and three sisters used to help our dad before and after school. We'd spend our evenings picking the tops off the chillies while watching TV. I inherited my dad's passion for food and he taught me to cook. He was very strict, though. The kitchen was organised with military precision. Every spoon has its place.

"When my father fell ill in the late 1980s we all knew it was time to step up. And we got stuck in, extending the opening hours, adding extras to the menu, and gradually expanding. My dad did get upset when he saw the builders smashing through the original walls of his old caff. We had to ask the builders to take a break and eventually sent my dad on holiday while the work was done so that he wouldn't be too traumatised. But he was so proud when he saw the finished place. And we're now ranked seventh in the top 10 for food in the Zagat London Restaurant Guide 2009, beating Raymond Blanc's Manoir Aux Quat'Saisons. And it's still a family affair – eight of us work here now. And we still live above the restaurant ... which never stops me from being late for work."

'It's a more personal service at such an emotional time'

Arthur Jary & Sons, Funeral Directors, Norfolk

Founded 1899 by Arthur Jary

Currently run by Susan Thompson, 51, and Debbie Jary, 45, who are Arthur's great-granddaughters

"Growing up next door to the business, I have memories of playing among the memorials," says Susan Thompson. "I first started doing bits of office work in 1975 when I was 17. I had no ambition of eventually running the place. It just happened, really. Through the generations, we've never been academic high flyers or entrepreneurs. But we all have good, old-fashioned common sense. Although Debbie and I are both qualified funeral directors, we both work in the office because of the volume of paperwork there is nowadays and employ two managers and an on-site stonemason, Glen.

"The business was started in 1899 by my great-grandfather Arthur Jary, who was by trade a builder and carpenter," says Susan. "In those days builders were often asked to 'undertake' funerals, and eventually his company became a funeral directors and stonemasons. Arthur was joined, and eventually succeeded, by his son Len, who was in turn joined and succeeded by his sons, Brian (my dad) and David (Debbie's dad).

"My cousin and I love our work, which is important to the community and personally satisfying. We have no wish to conquer the world of funeral directing and are content to give the best possible service locally. In our industry, large companies often buy up family-run businesses but keep the old names, making it difficult for customers to tell when a funeral director is independent, even though many people would prefer to use a family firm and receive a more personal service at such an emotional time.

"Debbie and I both have sons in their early twenties. I can only speak for my own son, Sean, who's just graduated from university and wishes to pursue a career in the Army. Then it's his intention to then come into the family business. But who knows? I live in hope."

'We both had to start at the bottom'

Nelsons homeopathic pharmacy, London

Founded in 1860 by Ernst Louis Armbrecht

Bought by Dick Wilson in 1972

Currently run by Dick's sons Robert, 46, and Patrick Wilson, 43

"My father never pushed us into joining the business," says Robert Wilson. "And we both had to start at the bottom. I began as a sales rep and Patrick began developing export. It was great fun – we did everything from loading the van to planning strategy. Our father let us drive the company forward and if we disagreed, he always played the honest broker. Our company – which makes the Bach Original Flower Remedies – has its roots with the founding father of homeopathy himself, Samuel Hahnemann, whose student Ernst Armbrecht moved to London in 1860 and married Charlotte Nelson. It stayed in that family until the tragic crash of a plane bound for Belgium in the early 1970s. Many of the leading lights of British homeopathy were killed as they were all heading to a conference in Brussels.

"The homeopathic community asked my great uncle Andrew if he would take over the business, as he'd had a long interest in complementary medicine. But he was quite elderly and asked my father Dick (who was in the meat industry back then) if he would run it. When my dad bought Andrew out the company was turning over £100,000 per annum – it was just a pharmacy shop in Mayfair. We grew steadily until we were turning over just under a million when I joined in 1987 and Patrick joined a year later.

"Our skills complement each other very well, but one downside is that we do often end up talking about work outside of the office. In a family business your identity is intimately bound up in what you do. I'm proud that we built it ourselves and that today the business has the intimacy and values of a private company and the professionalism of a blue chip organisation. We won the Coutts Family Business Prize last year and turned over £40m. I have four children and my brother has three. If they were to take over at any stage I think it would be important for them to earn their spurs, perhaps in another organisation, first."