Family business issues and challenges

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While family-owned businesses provide a living and personal satisfaction for many people, they must be managed just like any other small firm if they are to succeed. We usually think of family businesses as being started, owned, and operated by the parents, with children helping out and later taking over. Now, though, two contrary trends are developing. First, many young people are going into business for themselves- and tapping their parents for funds to finance their ventures. In return, the children often give one or both parents an executive position in the company, including a seat on the company’s board. Also, many retirees want to work part-time for the children’s businesses, without assuming a lot of responsibility.

Another trend is the large number of spouses doing business together. We used to think of married couples running a small neighborhood store, toiling long hours for a modest living. Now, though, a new breed of husband- and-wife entrepreneurs has emerged. They typically run a service enterprise out of their home and use computers, modems, and phone lines as the tools of their trade. From statistic data I have written that joint proprietorships of husbands and wives increasing significantly. Although one or a few family members usually control ownership of a small firm, many others in the larger family are often involved. The spouse and children are vitally interested because the business is the source of their livelihood. In addition, the firm may employ some relatives, some may have investments in it, and some may perform various services for it.

The founder-owner may set any one or more of a variety of goals, such as adequate income and perpetuation of the business, high sales, service to the community, support of family, and production of an unusual product, just to name a few. This variety of goals exists in all companies, but in family firms strong family ties can improve the chances of consensus and support, while dissensions can lead to disagreement and/or disruption of activities. Usually the founder- or a close descendant- is the head of small businesses. Relatives may be placed in high positions in the company, while non-family members fill other positions. In some cases, it is expected that the next head of the firm will be a family member and other members will move up through the ranks, according to their position in the family.

Family ties can cause friction when ownership and management are not dealt with separately. When family members are treated preferentially, non-family employees may become disgruntled or quit. Family members sense of ‘ ownership’ can be a strong, positive motivator in building the business and leading to greater cooperation, and opposite can also be true, however. Conflicts can occur because each relative looks at the business from a different perspective. Relatives who are silent partners, stockholders, or directors may see only dollar signs when judging capital expenditures, growth and other important matters. On the other hand, relatives involved in daily operations may judge those matters from the viewpoint of marketing, operations, and personnel necessary to make the firm successful.

A related problem can be the inability of the family members to make objective decisions about one another’s skills and abilities. Unfortunately, their quarrels and ill feeling may spread to include non-family employees. One possible solution is to convince family members, as well as non-family employees, that their interests are can serve by a profitable leadership. Some members want to become chief executive officer of the business but do not have the talents or training needed. Some others may have the talents, but because of their youth or inexperience, these talents may not be recognized.

Family members with little ability to contribute to the firm can be placed in jobs where they do not disturb other employees. Sometimes, though, relatives can loaf on the job, avoiding unpleasant tasks, or taking special privileges. They may be responsible for the high turnover rate of top-notch non-family managers and employees. Such relatives should be assigned to jobs allowing minimal contact with other employees. In some cases, attitudes may be changed by formal or informal education.

Compensating family members and dividing profits among them can also be difficult because some of them may feel they contribute more to the success of the firm than others. Compensation should therefore be based on job performance, not family position. Fringe benefits can be useful as financial rewards, but they must conform to those given to non-family employees. Stock can be established as part of the compensation plan. Deferred profit-sharing plans, pension plans, insurance programs, and stock purchase programs can all be effective in placating disgruntled family members.

Entrepreneurs tend to be specialists in an activity such as marketing, production, or finance, so they aren’t usually good general managers. While managerial skills can be developed over a period of time through training and/or experience, the skill of sometimes saying no to family members wanting to enter the business may still be missing. Another problem is that family managers may feel it is necessary to clear routine matters with the top family member. Also, bottlenecks that work against efficient operations can be caused by personality clashes and emotional reactions. Therefore, lines of authority and responsibility in the company must be clear and separated from those in the family. This is an important distinction because a person’s age often determines the lines of authority in a family, while ability must be the primary guide in a business.

The number of competent family members from whom to choose the managers of the company is usually limited. Some members do not want to join- or are not capable of joining- the company in any position; some are only capable of filling lower-level jobs; and some are not willing to take the time or expend the effort to prepare themselves for a management position. So it’s amazing that so many family businesses have such good leadership- family and non-family. But, as the leader grows older, he or she must keep up with the times and guard against letting past successes lead to conforming to the things of the past by trying to maintain the status quo.

Some families from the businesses into corporations and hire professional managers to run them when no members are in positions to manage or no agreement can be reached on who should run the company. This solution has the advantages of using professional management, freeing family time for other purposes, reducing friction, and having employees treated more fairly. However, the disadvantages are loss of a personal touch, reduced family employment, lower income, concentration of power in small cliques, and difficulties in finding and keeping a good management team.

The last problem that related with family is a growing problem facing many small businesses today is apathy on the part of offspring. Often, children who are reared in a small business become bored or uninterested, or simply lack the drive and desire to succeed that their parents displayed. They may feel that since the business has supported them in the past, it will continue to do so in the future. One way to prepare children to take over the family business is to let them work on simple jobs, or on a part-time basis, which provides insights that may influence them into-or away from the business.

Another form of preparation is working for another company in order to broaden their training and background. Such experience helps justify moving a family member into the family business at a higher level. Summarizing all above we can say that family business high risky with his core problems as above mentioned. But also gives to people feel freedom and responsibility for his any action.


William L. Megginson, Mary J. Byrd, Charles R. Scott, Leon C. Megginson Small Business Management 2001 year

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