Article

The Rewards and Challenges of Family Owned Businesses

Posted by Pat Gorski on Jun 16, 2016 05:00:00 AM

Topic: ALL

Husband and wife in front of their flower shop

Family-owned businesses are very common in the United States and several have thrived for many generations. Although there are many challenges associated with a family-owned business, there are also several rewards.

Challenges of a Family-Owned Business

  1. Employee retention—Employees who are not family members may feel that their opportunity for advancement is limited because they may perceive that family members are the first to advance.

  2. Qualifications—Some family-owned businesses feel pressure to hire relatives or close friends that may not be qualified or have the right skill set.

  3. Firing a family member can be a difficult undertaking. That said,, sometimes underqualified or non-producing family members are allowed to keep their jobs to avoid conflict.

  4. Separating work from home life can be difficult in a family business. Family gatherings often times  turn into work meetings

  5. Family members with an ownership stake that work outside of the business may have a different view when it comes to reinvesting profits back into the business compared to family members that have an active role in the business. For example, non-active family members may want to distribute profits to the family while the active family members want to reinvest profits to help the business grow.

  6. Succession planning in a family-owned business can be a challenge. For example if a father and/or mother is transitioning the business to their 4 children, it can be a difficult task determining who will take on the primary leadership role..

  7. Family issues such as divorce, financial crisis, and health concerns are often magnified in a family business.

  8. Clear compensation guidelines for family members can often be an issue in a family-owned businesses, especially when prior generations have built a degree of generational wealth.

  9. Communication issues may result due to unresolved family issues or relationships.

  10. A lack of unified vision may result if family members have different long-term goals for the business.

  11. Attracting future generations to the family-owned business can be a challenge if family members want to pursue a career outside the company or don’t have a passion for the business.

  12. Transfer of power can be difficult from one generation to the next if the person “passing the torch” is still active in the business and viewed by the employees to still be in charge.

Rewards of a Family-Owned Business

If a family-owned business has been successful for a long period of time, it has more than likely developed significant generational wealth that would not have otherwise been possible. This wealth may provide the liquidity necessary to fund growth or help the business survive an economic down turn.

  1. Consumers often associate trust and quality with long time family-owned business. Employees, both family and non-family, are more likely to feel a deeper connection with family management. This often brings about greater employee commitment, longevity and a less bureaucratic environment.

  2. Family-owned businesses typically offer early exposure to the next generation resulting in a greater degree of hands on training. Often times, children or grandchildren may have the opportunity to learn the business while working in it over the summer or on the weekends.

  3. Although it may not always be the case, one of the biggest rewards associated with a family owned business is getting to work with your loved ones on a daily basis.

  4. Family-owned businesses offer the unique ability to pass your legacy and values from generation to generation.

Despite the many challenges of running a family business, there are many rewards that can make it well worth it. With the right advisors and partners in the business, family businesses run successfully and fairly for all involved.

By being aware of the challenges, business owners can be more proactive in developing solutions to help make the right decisions and meet their goals.

To learn more, contact one of our local Commercial Bankers.