Happy Families or Family Feuds

The Pros & Cons of a Family Business
Written by Jessica Ferlaino

Would you believe family-owned and operated entities are the foundation of the global economy and represent between 80 and 90 percent of all businesses around the world?

In 2019, there were eight million family businesses in the United States alone, many of which were construction companies, making families en masse one of the largest employers and a significant contributor to the country’s GDP.

Often referred to as “mom and pop” operations, a family business is one that is owned and managed by at least two members of the same family. While most family businesses boast a tightknit, family-oriented work culture, the culture will be heavily influenced by the family dynamic, which, as we all already know, differs from family to family.

Just as some families can’t get enough of each other, there are others that can’t be in the same room. If you’re in the latter category, a family business might not be for you. Spending countless hours a day with people you are not fond of is likely to make strained relationships even tenser and will likely impact how the business operates.

That is not to say that only happy families can run successful family businesses. Quite the contrary. There’s no known correlation between happiness and success, just as there’s no guarantee of success in any economic endeavour, but there are certain advantages and disadvantages to owning and operating a family business.

Countless studies have shown that family businesses outperform public corporations and create more wealth, particularly in cash flow and total return on investment. But despite these advantages, family businesses are not without their challenges.

If you are considering setting up a family business, joining the family business, or taking one over, several factors should be evaluated beforehand to ensure that you’re making the right choice, while insulating your financial investments and personal relationships in the process.

Let’s begin on a positive note.

A major advantage of being family-owned and operated is having a ready-made brand. Family businesses are typically associated with tradition, hard work, craftsmanship, good governance, and loyalty. There’s a cross-section of consumers that will go out of their way to support a family operation based on the personal relationships that have been built.

That’s partly because when working for yourself and with family, there is less financial pressure to create immediate returns and a greater emphasis on building relationships. Coworkers are more than just peers or business partners, they are your family, and that alone is a powerful motivation to put your best efforts into striving for economic success in the long term.

As such, family-owned companies are likely to be smaller, with a culture that is future-focused, relaxed, and comfortable, though this can be a downside as well. Too much comfort can breed complacency.

Smaller operations tend to a more personalized, family-oriented work environment. When employees become family, leadership better understands the needs of its employees, and in turn is more flexible, understanding, and empathetic to these needs. As a result, employees work harder.

Be it relationships between relatives or employees who are like family, when bonds are good the strength of these relationships will serve as the foundation of the company’s leadership and success.

Ultimately, working with family, you know what you are going to get: the business is less likely to be weighed down by character flaws and their implications, and if everyone is united by a common goal and values, everyone is more loyal, invested, and willing to make the sacrifices and efforts that are necessary for the collective good.

This culture contributes to greater collaboration, more intuitive decision-making, and a heightened business acumen that can undoubtedly serve to enhance the family’s financial and personal interests.

As to be expected, there are also disadvantages to owning and operating a family business, some of which can lead to the business’ ultimate demise. While the prospect of working with loved ones is great, creating a generational economic legacy comes with its fair share of challenges.

One of the most obvious dangers for family businesses is the propensity for meritocracy to take a backseat to nepotism or favouritism. Not only can this result in the lesser-qualified moving up the leadership ranks faster than those with the most skills and experience to the detriment of the company, but this can also create resentment amongst employees and family members alike.

Where there may be undeserved career advancement, there may also be less motivation to succeed, which can be a barrier to innovation and growth. Clinging too tightly to tradition can have the same negative results.

To be a profitable family business, there is a good likelihood that you will have to work many hours of unpaid overtime, and even when you aren’t working, work is likely to be a topic of discussion or a point of focus. Boundaries are an absolute must when running a family business to ensure a good work-life balance is achieved.

Conflict management is another priority of successful family businesses. Of course, you don’t need to be in a family business to encounter work conflict, it can happen anywhere, but it is important that work conflicts are addressed and don’t persist outside of work, especially with family. Establishing clear roles and responsibilities and well-defined share allocation and payment structures may not totally negate conflict but will lessen its likelihood and severity.

The subject of a thousand TV dramas, one of the biggest sources of conflict for family businesses is the matter of succession. Only 30 percent of family companies will make it to second-generation ownership, with half of that number making it to the third generation.

Clearly, it’s imperative to have a succession plan and good communication to ensure the next generation is both able and willing to take over and is accepting of the plan so that failed expectations aren’t the cause of either family or business breakdown.

There are certainly pros and cons to operating a family business in any industry. At the best of times it can be a challenge but having the right team around you can make all the difference, especially if they are family.

If a family business is what you dream of, there are certain ways you can protect your interests and safeguard your family. Consider succession planning and how shares are allocated, ensure decisions are business-driven and not personal, establish clear roles and responsibilities and conflict management strategies, and remember your motivation for doing so: your family.

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