What is a Family Business?
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.
Conflict between Business System and Family System
Conflicts arise in family business when the roles of one system intrude into the roles of the other and because each member of the family is basically involved in a dual system problems arise. The overlap of these two systems become really apparent when there are conflicts in interest arising between the family members and the business.
Most families regard the concerns as being paramount in all cases but a prudent business owner will ensure that family concerns and business concerns are properly balanced so as to achieve the maximum satisfaction for both systems and people involved. Too often the emotional bonds of family tend to short cut processes which have been designed to ensure the security of the business and to maximize its success.
For example, family members are put into positions of power where they do not have experience or knowledge simply because they are family members. If they came through the normal interview and selection process they would not get that position. This is clearly a case where family considerations breach the normal standards of how businesses should be run in order to achieve maximum profitability.
Specific Issues in the Family Business
A business is difficult enough to manage at the best of times. A family business however brings with it its own issues and problems and these need to be clear before anyone gets involved in a family business whether that person is part of the family or an outsider. A family business is subject to the same problems that beset every other business except they usually take on an extra one or two, simply because relatives are involved.
Some of the issues that most businesses have to face include the following:
- Leadership. Who is the leader in the business that makes the final decision and how will it appear for the business to move onto the next generation.
- Family Harmony. What needs to be done to ensure that there is harmony in the family.
- Successors. Who will be chosen to succeed and run the family business when the present manager retires or dies? Any family member who is given the responsibility of managing the family business must ensure that sound business and management practices are carried out.
- Engagement. Who should participate in the family business and under what conditions?
- Passing over the Business. What has to be done to allow the entrepreneur to pass over the business to the next family member?
- Non-family people. How are non-family executives and managers to be attracted and retained and what powers do they have to make decisions that may go against the wishes of family members in the business.
- Compensation. Should family members be paid for work which they are not qualified in? And should their salaries be at the same level as non-family members with greater expertise and knowledge in a particular area?
- Protect Finances. Many relatives regard the company as their own personal bank and as a place where they can do whatever they wish. The prudent family 'boss' needs to make decisions, however unpopular he becomes with family members, that will ensure the ongoing protection and financial health of the business.
All the issues above have to be assessed in a family business situation because the potential for business conflict and family stress can be very high. The way to diffuse conflict and eliminate stress involves identifying the issues causing the conflicts and stress and then discussing these issues with all the family members involved.