Starting a business comes with unique challenges and benefits that require careful planning. Family-owned firms or companies are no different. Before considering investing in this project, you need to know some pros and cons.
First, what is a family-owned business?
A family-owned business is any business entity involving two or more families. These entities also include factors where the majority of ownership and control lies within the family.
Family-owned businesses may be the oldest organization, where family members usually run farms and shops. Throughout the centuries, family businesses have been a staple in the country’s economy, where at least 90% of American businesses are family-owned or controlled (at least according to INC) and are responsible for half of the country’s gross national product.
Suppose you’re considering starting a family business or working for one. Here are some pros and cons for each.
Advantages of a Family Business:
1. Provides stability.
Family businesses are more stable than typical businesses, although this depends on the position of each family member. When assigned properly and trained well, it can result in stability and longevity in leadership, thus, enabling employees, who are also family members, to stay longer.
2. Better commitment.
Many family firms have a great sense of commitment and accountability because their business doesn’t just depend on the income but on the family’s benefit. This desire to keep the business running as a unit for long periods brings about mutual benefits like understanding the company and its history, adapting newer customer service forms, and helping the industry thrive through difficult periods.
3. Offers flexibility.
Family-run businesses also offer a lot of flexibility, where members who are not good at one department may have a shot at working on other areas of expertise. This arrangement gives family members more room to grow while exploring different aspects of the business entity.
4. Decreased cost.
Most family-run firms depend on family members’ willingness to contribute financially to keep businesses afloat during hard times. Additionally, family members are more flexible regarding starting pay or prospects in the company—some assets that non-family business firms do not offer.
5. Possible long-term outlook.
Non-family business firms often draw up goals for the next quarter, whereas family-run firms may view their goals in the long term. It’s not uncommon for heads of families and businesses to develop strategies involving estate planning, transferring roles to the next head-in-charge, and future endeavors.
Disadvantages of a Family Business:
In many businesses, it’s not uncommon for certain employees to have a tactical advantage over another based solely on bloodline instead of merit. While countless heirs and successors are trained to follow in the footsteps of their elders, loyal employees who feel they earned their stripes may find this arrangement unfair.
2. Possible lack of family interest.
Many family businesses often shut down because there is a lack of interest. Circumstances like not wanting to become the heir/heiress, having different interests, and possessing other skill sets irrelevant to the family business are some obstacles that come to mind.
3. Possible conflict between family members.
Choosing an heir or successor doesn’t always involve being the eldest child. Some families may base their decisions on whether one child is more “capable” than another. Whatever the criteria are, siblings who felt they’d been overlooked because of their parents’ display of favoritism may feel strong resentment towards this. Additionally, it can foster bitter feelings, possibly leading to conflict, which can endanger the business and family ties.
4. Possible issues with succession planning.
Research states that 62% of employees would feel significantly engaged with their role if the employer had a clearly defined succession plan. Unfortunately, many family businesses overlook these long-term plans, citing reasons about whether it’s unnecessary or simply refusing to accept that someone will eventually take over.
The truth is that there will always be instances where a family business may appoint a successor soon. These instances include sudden death, illness, or a possible scandal that can harm the business’ growth. Whatever the case, determining the future of the family’s empire can help formulate a plan for a safety net should the worst-case scenario happen.
A family business is one of the oldest business entities throughout human history. They offer a bulk of the country’s economy, where many lineages have benefitted from its success. While family businesses provide some advantages, they also have unique issues that can make or break their future.
Some possible issues include family conflict, lack of structure, nepotism, lack of family interest, and difficulty naming a successor. Whatever the case, individuals planning to start a family empire to create generational wealth must learn to think of long-term goals and strategies.
Nevertheless, creating a family business can offer some advantages for many. One is its flexibility regarding position, payment scheme, and schedule. Second is the long-term experience of finetuning one’s business procedures without the pressure of going quarter after quarter. Another is generating family wealth down the line and making sure the next generation has a cushion of safety and support.
When deciding on creating a family business, it helps to weigh the pros and cons for each. If you’re a beginner, you may find it beneficial to start slow so you don’t put pressure on yourself. Know that there’s a chance you won’t become a millionaire overnight, so always be realistic with your goals.
Next is learning to recognize good employees who aren’t blood-related. This step is crucial because if you want your business to be long-term, you must realize the ones who play a vital role during its beginning phases. Fostering loyalty from everyone, especially non-family members, can ensure the longevity of your empire. Valuing your non-relative employees assures them they won’t lose their job.
Lastly, always have an “exit plan” should there be an instance where an heir or successor cannot fulfill their duties. While it’s not beneficial to be so pessimistic, it does help to at least have a plan when issues come to light.