Family business

A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being.

Family businesses may have owners who are not family members. Family businesses may also be managed by individuals who are not members of the family. However, family members are often involved in the operations of their family business in some capacity and, in smaller companies, usually one or more family members are the senior officers and managers. Many businesses that are now public companies were family businesses.

Family participation as managers and/or owners of a business can strengthen the company because family members are often loyal and dedicated to the family enterprise. However, family participation as managers and/or owners of a business can present unique problems because the dynamics of the family system and the dynamics of the business systems are often not in balance.

The interests of a family member may not be aligned with the interest of the business. For example, if a family member wants to be president but is not as competent as a non-family member, the personal interest of the family member and the well being of the business may be in conflict.

Or, the interests of the entire family may not be balanced with the interests of their business. For example, if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive, the interests of the entire family and the business are not be aligned.
Finally, the interest of one family member may not be aligned with another family member. For example, a family member who is an owner may want to sell the business to maximize his return, but a family member who is an owner and also a manager may want to keep the company because it represents her career and she wants her children to have the opportunity to work in the business.

When the family business is basically owned and operated by one person [This person often being the founder or sometimes known as the entrepreneur.] , he or she usually does the necessary balancing automatically. For example, the founder may decide that the business needs to build a new plant and decides to take less money out of the business to live on for a period of time in order for the business to generate the cash needed to expand. In making this decision, the founder is balancing his personal interests (taking cash out) with the needs of the business (expansion).

But balancing competing interests often become difficult in three situations. The first situation is when the founder wants to change how he or she is involved in her business. Usually the founder begins this transition by involving others to manage the business. Involving someone else to manage the company requires the founder to be more conscious and formal in balancing his or her personal interests with the interests of the business because he or she can no longer do this alignment automatically—someone else is involved.

The second situation is when more than one person owns the business and no single person has the power and support of the other owners to determine their collective interests. For example, if a founder intends to transfer her ownership in the family business to her four sons, two of whom work in the business, how will the interests of all four owners be determined and if they have differing interests how will those differences be balanced? Mom can do it when she is involved, but the four siblings will need a system to this themselves when Mom is no longer involved.

The third situation is when there are multiple owners and some or all of the owners are not in management. Given the situation above, there is a higher chance that the interests of the two sons not employed in the family business may be different that the interests of the two sons who are employed in the business. Their potential for differences does not mean that the interests cannot be aligned, it just means that there is a greater need for the four owners to have a system in place that differences can be identified and balanced.

Successfully balancing the differing interests of family members and/or the interests of one or more family members on the one hand and the interests of the business on the other hand require the people involved to have the competencies, character and commitment to do this work. Often family members can benefit from involving more than one professional advisor, each having the particular skill set needed by the family. Some of the skill sets that might be needed include communication, conflict resolution, family systems, finance, legal, accounting, insurance, finance, investing, leadership development, management development, and strategic planning. [See generally, Tutelman and Hause, The Balance Point: New Ways Business Owners Can Use Boards (2008 Famille Press)]

References

External links

* [http://www.umass.edu/fambiz UMass Family Business Center: World's Largest Free Family Business Resource ]
* [http://www.fambiz.neu.edu Northeastern University Center for Family Business]
* [http://www.exed.hbs.edu/programs/fib/ Harvard Business School Families in Business Program]
* [http://www.familybusinesscenter Conway Family Business Center of Central Ohio]
* [http://www.ffi.org The Family Firm Institute]
* [http://www.afhe.com The International Association of Attorneys for Family Held Enterprises]