A family business is basically any business in which the majority of the ownership or control lies within a family. Involvement of members of family in a business can bring with it its own complexities because the line between the business system is sometimes separated by a thin line from the family system. Sometimes these 2 positions overlap causing all sorts of conflicts.
Families involve emotion with includes relationships that carry with it loyalties and natural love whereas a business system is unemotional and coldly designed to extract the highest profit from that venture.
Styles that are necessary in a family situation may not always suit the business situation. Membership of a family is by birth whereas membership of a business should be by investment and performance.
Families deal with family matters in a certain way that entails the head of the family making decisions either alone or in consultation with another senior member of the family. The business however, has its own systems and methods of communication as well as styles involving the resolution of conflicts and finalizing decisions.
For many people, starting a home family business is a sure way to lose money. It seems like only the most dedicated seem to find something that works for their family, and it’s usually only after spending lot’s of time and money on businesses that don’t work out. By Arming yourself with this information you don’t have to be one of those that has to learn the hard way.
It’s always wiser to learn from other’s people mistakes, then it is to waste your time and money learning the ropes. I’ve also failed at several business ventures that I started, but then I found the right opportunity for my family. I also found a great mentor that helped me learn the ropes.
Recent research has shown that continued family control can be efficient, since families are, for example, able to positively affect the resource inventory and usage of their firms, apply a long-term perspective allowing for unique strategic positioning, have less human resources problems and higher firm values, or drive new entrepreneurial activity. What truly drives many family businesses is the sense of connection and identity the owners and their family members feel with the business. The environment for innovation in family businesses improves when more generations of the owning family are actively involved in the business. Family-owned businesses practice good governance. Family businesses develop leaders in unlikely places more than 40 percent of companies in the Harvard Business review study included members of the next generation on their boards and committees in order to nurture their business and management skills.
Below we have listed some of the paramount challenges faced by family owned business which determines the success, growth, and continuation of a FAMILY BUSINESS.
1. EMOTIONS – Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.
2. INFORMALITY – Absence of clear policies and business norms for family members.
3. RESTRICTED VISION – Lack of outside opinions and diversity on how to operate the business.
4. CARELESS DOCUMENTATION – No documented plan or long term planning.
5. FAMILY MEMBERS COMPENSATION – Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.
6. CONFUSED ROLES – Roles and responsibilities must be clearly defined.
7. PRESSURE TO HIRE FAMILY MEMBER – Hiring family members who are not qualified or lack the skills and abilities for the organization. Incompetency should not be tolerated.
8. GREATER COMPENSATION TO NON FAMILY MEMBERS – It is a common myth that family members will receive more compensation in a family business and develop a attitude of incompetency towards management.
9. PLANNING FOR SUCCESSION – Great conflicts and division are the result of no proper plan for handing the power to the next generation.
10. ESTATE PLANNING AND RETIREMENT – Long term planning to cover the necessities and realities of older members when they leave the company.
11. PROBLEMS IN COMMUNICATION – Difference in level of seniority and emotions like envy, fear, anger invoke zero communication in members.
12. DISABILITY TO CONTROL – Difficulty in controlling the operations of the organization, other family members and lack of supervision in day to day activities leads to more problems.
But as we all know that Families and Businesses come from different worlds. Like oil and water… they cannot be mixed. But, families have always built businesses together… and they always will.