Family Owned Business - Pros and Cons
- October 17, 2023
- by Michael
If you are considering starting a family-owned business, you should research all the pros and cons of starting this type of business. How much better is it than working in a regular job for somebody else? Read on to explore the possibilities.
1. The benefits of family-owned businesses
Family-owned businesses have many advantages that many people are not aware of. Family-owned companies are:
- Better capitalized, carry less debt and have a higher degree of stability since it is less likely that members of the family business will withdraw their investments.
- More able to handle change vs businesses among non-family partners.
- Extra committed to their employees and the community because by their nature they have deep roots in the local area.
2. The challenges of family-owned businesses
Just as family-owned businesses have benefits, they also have challenges that every family-owned business struggles with.
The main challenge in family-owned businesses is that they cannot separate their private and business lives. On the one hand, there is a deep commitment to work, shared vision and values, and loyalty to the family, and on the other hand, they can have mutual conflicts, communication problems, and mutual power struggles.
Another challenge can be conflict between family members due to different ideas of how the business should be run. Such behavior can make it difficult to reach consensus on important decisions.
Sometimes complex family relationships can lead to poor communication between family members and this can lead to disagreements and frustrations. This is especially true of a married couple that work together. An added risk of a couple working together is the extra stress leading to a divorce.
Regardless of these challenges, family-owned businesses can be very successful if everything is well planned and if excellent communication is established between family members.
3. Succession planning in family-owned businesses
Family-Owned businesses that involve multiple generations need to have a succession plan setup (e.g. passing the business from father to son). Problems arise when family members do not agree on who is suitable to run the family business next. In order for this not to happen, it is necessary to choose someone who is dedicated to the family business and who will not be in conflict with other family members. Choose wisely so that the planned successor will run the family-owned business in a harmonious way and ensure they are skilled enough to run the business competently.
4. Capital investment in family-owned businesses
Family-owned businesses have slightly different challenges than regular businesses. One of them is how to finance growth. For them, this is the key to success, but at the same time the challenge of how to get capital investments. The main reason is that they don't have the same access to banks and lenders as regular businesses. Another reason is that they have a limited number of investors who can only be family members or close friends. The third reason is that family-owned companies do not want to lose control over their company if they choose an outside investor for their growth. The fourth and final reason is that it is harder for them to find new employees because they do not offer the same salary and benefits as other companies.
Regardless of the stated reasons, family-owned businesses can find money for their capital investments. The first is the use of debt. This is achieved by taking loans, using credit cards, and if they are large enough issuing bonds. Another way is to collect capital from private investors, and for this to happen, it is necessary to sell a share in the company.
A third way is that they can do this through their own internal resources, which includes reinvesting profits, selling accounts receivables, and building up cash reserves.
No matter what method they use for their capital growth, they need to not take out large loans or allow themselves to lose control of their family-owned business.
If they overcome their challenges, they can be a powerful force for economic growth.
5. Human resources management in family-owned businesses
In a family-owned company, human resources management creates a balance for the company's business and the employees themselves. HR strategies that can help a family-owned business succeed are:
- Develop a clear and concise job description for each position.
- Employment based on qualifications and fitness, not just based on family ties.
- Thoroughly train all employees on company policies and procedures.
- Communicate regularly with employees to ensure they understand their roles and responsibilities.
- Encourage open communication between employees and management.
- Ensure that all employees are treated fairly and equally.
- Offer competitive salary and benefits packages.
- Invest in employee development and training.
- Recognize and reward good performance.
- Resolve conflicts and disciplinary matters promptly and fairly.
These strategies can help you be productive and achieve the success you want.
6. Marketing and sales strategies for family-owned businesses
Family-owned businesses need to be adaptable with their sales and marketing strategy. Promoting themselves as a family business with excellent customer service can be a strategic advantage over the competition. Changes and innovations in sales and marketing need to be kept up with. For example the ever increasing shift to online advertising and having a fun and interesting social media presence.
7. Financial management in family-owned businesses
Managing finances in a family-owned business is a real challenge because it means you have to be fair to all family members. At the same time there needs to be a designated leader or CEO who makes the hard decisions. Everybody needs to follow their lead and understand it is a family effort.
Conclusion: Many prefer to work in a family-owned business for the sense of connection, pride, and community. At the same time, challenges in communication, equity, and workload can present serious challenges that need to be managed.