Family businesses tend not to be the most profit-hungry of enterprises, preferring to focus on the long-term sustainability of the operation with a view to handing it on to their heirs.
However, even the smallest locally-operating firms have been caught up in the fallout from the global credit crunch. The combination of late payments and difficulty accessing credit has threatened the viability of businesses that have survived for generations.
But before the financial crisis struck, family firms were facing longer term challenges. Local food producers and small retailers have been steadily disappearing from the main streets of towns and villages across Europe, replaced by low-cost chain stores promising a wider variety of goods at knock-down prices.
The days of the local solicitor and financial advisor may also be passing as banking and insurance giants crowd out or absorb local operators. Even doctors and pharmacists have tended to group together into one-stop health centres to survive.
This creates a major disincentive to the next generation who might otherwise have carried on the family business. Greater mobility of the workforce also means young people might choose not to carry on the family tradition of running the local bakery – particularly if their viability is threatened by supermarkets and chain stores.
A survey by PricewaterhouseCoopers showed that one quarter of family firms are due to change hands within five years, with just half of these remaining in the family. A sizeable number of firms – almost 50% – have no plans for succession.
Definitions of 'family businesses' vary across Europe, with some countries generally referring to 'micro-enterprises', and others using the term to describe any company controlled by a single family.
There are differences too beteween Western Europe, where family businesses have been central to traditional life, and Eastern Europe, which spent several decades without a culture of private enterprise.
United Kingdom
According to the UK government, two thirds of small businesses are family-owned. A survey by the Federation of Small Businesses (FSB) shows 6% of their members inherited their business, with 9% having received finance from their family.
Just 21% have succession plans in place, perhaps indicating pessimism about the prospects for enterprise.
"Many small businesses are crowded out by larger businesses; small shops selling food often suffer when a supermarket opens nearby. Independent financial advisers and construction companies are two further examples," said Richard Hislop, EU and international affairs advisor at FSB.
Hyslop said small family firms are at a disadvantage when it comes to winning lucrative contracts in the public and private sectors. "Smaller businesses often do not have the necessary resources or confidence to bid for such contracts," he said.
France
In France, the main challenge facing family-owned SMEs is an apparent lack of ambition and innovation. A KPMG study said the long-term search for security can hamper the emrgence of ambitious projects that might otherwise foster growth.
"SMEs are not brave enough in terms of innovation, partly because they are too reluctant to open their capital stocks or increase their debt level," the report warns.
A 2007 study by Sami Basli entitled 'Globalisation of the family SME: Decision and causes,' adds that SMEs react too slowly to changes in their economic environment and their strategy on the global market is not sufficiently adaptable.
Family enterprises in France are generally content to develop slowly and are rarely found in the high-turnover end of the business world. Less than one in five SMEs with a turnover between €7.5 million and €100 million are family-run. This falls to just 5% when examining the group of companies with a turnover between €100 million and €200 million.
However, a European Commission report on French SMEs pointed to a "renewed trust" in the values of family businesses as an alternative to the behaviours of larger firms with anonymous shareholders. The emerging emphasis on corporate social responsibility could be an opportunity for small and family-run companies.
This survey also highlights a difference between French and Anglo-Saxon family businesses, namely that just 20% of family firms in France have defined internal rules. Most do not have conditions for joining the business, nor do they have a shareholder agreement or procedures for resolving conflicts.
Czech Republic
In newer EU member states, the picture is considerably different. Until 1989, Czech citizens could not run any form of private company, meaning current generations have not inherited a tradition of family business.
Jaromír Drábek, president of the International Chamber of Commerce in the Czech Republic, said it was hard to define what exactly family business is. However, he estimates that some 10% of companies start as family businesses – the main reason being that founder prefers to work with people they can trust.
Restitution – the return of confiscated state property to its original owners in the 1990s – played a significant role in starting up many family businesses, according to Drábek.
Like all SMEs across Europe, family busineses in the Czech Republic are struggling to compete with larger corporate chains which have been expanding into Eastern Europe. Lack of financial resources and conflict between shareholders are also seen as limiting factors in the growth of family-owned enterprises.
Slovakia
Family business in Slovakia is also still very young and there are no official data available on what percentage of Slovak SMEs are family-owned. Many of the current crop of family companies have been in operation since first wave of privatisation in 1989.
Due to the relatively short lifetime of private business in Slovakia, family businesses owned by the second generation are rare. According to a study by the European Commission, it is very difficult to identify such enterprises because there is no legal status for family businesses in Slovak legislation.
Until 2005 it was illegal for any person with a valid contract to provide any help to entrepreneurs, even when it was a family member. New legislation that came into force in July 2006 put entrepreneurship and family enterprises on a firmer footing, making it easier for family members, students and retirees to legally participate in a family business.
Italy
Italy has a long tradition of family business, although some have faced tougher times in recent years. Latest data from the International Family Business Monitor show that the share of family businesses having an annual turnover of more than €2 million is highest in Italy, with 18% of firms being family-run. This puts Italy ahead of the UK (16%), Finland (15%), Germany (9%) and France (15%).
Succession is a looming challenge for firms in Italy. An analysis by Hyperion Corporate Finance, an independent financial advisor, conducted on Italian firms with a turnover of between €0.5 and €50 million, reveals that over the next five years, 60% of Italian companies could be involved in a generational transition.
The demographic crisis has led to an increase in the number of enterprises run by people aged 70 years and over. As a result, there are businesspeople in their fifties still waiting to take control of their family's company.
According to Toni Brunello, an expert on enterprise generational change, Lombardia is the Italian region most affected by this problem. "A survey in 2005 has highlighted that the problems of succession are the second leading cause of deaths of enterprises after market problems, whereas 10 years ago it did not feature among the causes of enterprise mortality," he said.
For several years, alarm bells have been rung by the European Commission about the risk of business succession in Italy. "Politicians are deaf to the problem," Brunello said, noting that such medium-term issues are not politically popular. He said even if businesses are passed on, "tacit knowledge" is often lost when the founder is no longer at the helm. This can lead to a break in continuity and the loss of key relationships with employees and customers.
