Many families decide to run a family business, they often combine their passions, skills to success and want to pass it to the next generation. The family business brings a lot of benefits as well as drawbacks, however, is it worth to start up a family business but what does the family entrepreneur actually mean? A family business is defined as ownership control by two or more members of a family or a partnership of a family (Ernesto J.
Poza). When considering a family business, we should remember that more than one family member is involved in the firm as an owner, and the family exercises some type of control. Families are often dominant form of business organization worldwide and they present in every country around the world. The statistics show that more than 50% of ownership is held by two or more than one family and a single-family group effectively control the business (Smyrnio, Romano and Tanewski, 1997).
The figures also showed that top 100 family-owned business in EU account for 14% of GDP (Camden FB, 2016). According to the studies in 2014, it reveals that the oldest family business in the world operates in Japan and is managed by the 46th generation of the founding family. It was first established in 718 and it is run for almost 1,300 years. According to Craig E. Arnoff (2018), a company is called a family business is if there are two or more family members who manage the company’s finances. However, Robert G. Donnelley in his book argues that we call he family business if there are at least two generations involved in the family and they influence company policy. So, we can state that family business is a form of business that involved family members in business ownership or operations.
Key Characteristic and Benefits of Family Businesses
For many people, establishing a business with a family member is an easier solution than starting it on their own. For the people involved, they often have knowledge of different fields and by this, they reduce the risk of failure. A Corporation with loved ones usually carries a lower risk of fraud, because the money from the safe is likely to disappear, as usually, a foreign person steals it. The main characteristic of family entrepreneurship includes many features such as inward focus, unconditional acceptance, sharing, and the offer of lifetime membership (Keanon J. Anderson, 2018). Another common key characteristic of a family business is the fact that managers and employees share family connections, values, and ethics and behavioural patterns which are transferred or at least shared at work. According to Tagiuri Davis (1996) three-circle model, in the family business, there are three separate areas which are: the business system, the ownership system and the family system (Appendix 1).
Firstly, a caring attitude and strong sharing culture are the biggest advantages. The family business depends on value systems which consist of truth, trust, and consistency, entrenched into having high-quality goods and products. Many family businesses have a reliable mantra which means making profits legitimately as well as have ethics which encourage active participation in the business. Because of building strong core value, families start being stronger together and achieve much more than a single small business. The second advantage for family business could be employing family members first. In the family business, the first employees are usually family members or members related to the family. The family not always employee family first but most of the time they are looking for help within the family and try to employee them first as they know each other well and it might be a little cheaper when starting a family business. It helps the business with a sense of the security to the owners as well as sometimes support to the extended family. It is easier for the company to hire its siblings and teach them everything and then transfer that knowledge and skill from one generation to the next.
It does improve firm performance and get involved family members in business from a young age. According to Reg Athwal (2017), another possible advantage of family enterprises is greater stability, flexibility, time and money issues, and faster decision-making. Flexibility is very important within the company and fortunately, a family member will not be able to say ‘sorry this is not my job’ because he is the member of the business and needs to do many tasks to have a successful business. Faster decision-making over solution or tapping into opportunities also happens fast to respond to issues and needs. Family members managing the business are more flexible and willing when it comes to the time and effort they give to their work. As a highly values venture, the family business becomes a priority to ensure business success (Fleming, 2000). The family business also allows less stress “although it requires more involvement than working on a job, associates can decide on working time and days off. This is a big advantage for a couple who have children. In addition, there are a few more advantages which are important such as the long-term focus or orientation of the business. Many family businesses are looking for long-term focus as they want to pass their businesses to the next generations. Other advantages could be knowledge of the business, its products, contract, and markets. Families know their customers best, their target market and its products.
Value of family entrepreneur in economy
Family enterprises promote growth, maintain and improve employment in the European Union. The family enterprises have been currently responsible for social and economic welfare. Family businesses mostly show higher profitability in the long run. From Timpson to Warburtons, some of our most enduring and favourite products have been created by family firms. They are high-profile bust-ups, incredible wealth and social. According to Rebecca Burn-Callander articles, family-run business contributes Ј460 billion a year to the economy, generating a fifth of the UK’s revenue and creating thousands of jobs. Family entrepreneurship has never been more important to the British economy and new research has revealed, generating a fifth of the UK’s revenue, and creating 800 jobs each day in 2016. Family businesses have a massive impact on the economy as it input so much money into the economy and moreover, increase employment. Last former prime minister David Cameron described the family business sector as at the heart of all-out lives’ at the start of the 2016 year (R. Burn-Callander 2016). In 2014, the UK economy saw encouraging sing of growth due to small and medium-sized businesses in the country recovery was becoming increasingly important (M. Jenkin, 2014). This was a great year for the SME because a 45Ј funding package for small businesses has been announced. In this case, the SME understands that the government is more likely to help them. Since then, to help the SME, the government creates a new business support website, www.greatbusiness.gov.uk and it was launched to help SMEs access services and products aimed at helping the business grow. This website could also help all the business to grow their businesses. There are many different institutions which help the business.
Drawbacks and risks of Family Business
Lack of communication
Lack of communication among family members. It is very essential to have effective, open communication among all family members, including various generations. The studies show that successful and long-lasting family-owned firms, healthy communication was found to be one of the main components of their success. Without effective communication among the participants, the business will most likely fail to success to the next generation. Communication is the key to most of the businesses, especially in family businesses. Lack of communication leads to business pressure and it can overload and burn out the family relationship (K.E, Gersick, J.A. Davis, M. M. Hampton, I. Lansberg. 1997)4.2 Conflicts Conflicts are very popular issues within the businesses, especially in the family businesses as everyone wants to have the last word to say and think they are always right. It makes conflicts within the business which can affect a bad reputation and some companies might even lose their customers. Also, personal issues are easily carried into the work environment, and work issues may be carried back into home life. This may lead to family problems and conflicts that impact the company and the other workers.
Difficulties to Attract Talented Outsiders
Family members are often promoted even if they are not an ideal candidate for a new position. This can lead to business problems, as well as angry and upset non-family staff, who may have been denied the promotion. Also, this might distract talented outsiders as they might think they will not be promoted for higher positions because they are not a family member.
Succession planning is the biggest issues within the family firms. This involves determining who will take over leadership and/or ownership of the family business when the current leaders/bosses retire or die. To avoid this situation, the current generation should have a well-defined plan. Who would not want to be a boss? The answer is easy because most of the people would like to take over the business. Many families try to avoid this conflict, however, sometimes it is impossible. According to U. Salmon succession planning is very important for a family business because young and old family generations are involved in the family firm. Moreover, improving the skills of the younger generation to innovate and explore new markets is crucial for the long-term success of family firms.
One truth about running a family business is that some of the family members might become too comfortable, knowing that they are working with the people closes to them. The result of this nonchalant attitude is poor performance, unpunctuality and, lack of formal planning and budgeting. Especially, young members of the family might do not appear at their given shifts.
Policy Actions Aimed to Support Family Entrepreneurs
Entrepreneurs and their businesses are crucial to European growth and competitiveness. As the family entrepreneurship play such an important role within the economy, either by providing jobs or in contributing to the GDP, the UK government provides a different kind of support to the small or medium businesses including family firms. The support consists of advice, consultancy, information, tax, training programs and access to finance.Firstly, family businesses are eligible for all support provided for small and medium-sized enterprises (SMEs) such as funding under COSME. According to the government’s statistics (GOV.UK, 2015), the government spent Ј11. 4 billion with SMEs in 2013-2014 and it was announced that a record 26.1% of government spending went to SMEs. Praseeda Nair’s argues in her article that the government is very helpful of enterprise and small businesses. There are many ways in which the government can help enterprises including family enterprises. One of the well-known government schemes is a start-up loan which has been created over the past few years.
If entrepreneurs receive a loan, they will also gain access to business mentor as well which could be beneficial for family entrepreneurship. However, there was recently a survey showing that the Government is not doing enough for small businesses. 79% of start-up entrepreneurs including family say they had no support from the government to launch their companies and 60% believe that government does not care about businesses like theirs (L. Buchanan 2018). The survey was conducted by the Kauffman Foundation and more than 2,000 entrepreneurs and small business-owners said there that they are unhappy with the resources provided by the government.Another policy actions aimed to support family entrepreneurship is tax breaks. There are two different tax breaks when it comes to investors putting their capital into small/medium businesses. Both assist businesses who are at different stages of their development.
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Analysis of Family Business. (2019, Aug 20). Retrieved from https://studymoose.com/analysis-of-family-business-essay