Introduction
Economic reforms in developed countries have initiated an intensive emergence of family enterprises. Family business in a market economy is a reasonably common sector, but it does not determine the rate of economic growth, structure and quality of the gross national product. Family enterprises are of particular analytical interest, as they represent a unique branch of small business. This essay is aimed at discussing the advantages and disadvantages that underlie the choice to start and develop a family business.
Family Business Concept
Due to diversity in analysis, a family business can be treated differently. On the one hand, organisations may be a small company with several employees – usually no more than ten. Typically, companies are founded by the same family and cousins. By type of management, organisations may be either full partner groups or leader responsibilities may be assigned to one representative (Aronoff and Ward, 2016). On the other hand, much steadier from positions of the economy is the second kind – the large firms inherited from generation to generation. As a rule, the family in such firms together holds a controlling interest. There is no unambiguous position of the scientific economic and administrative community on the effect of the family on the development of business models. While one family may break up a joint business, the other may strengthen the other.
Advantages of Family Business
When thinking about whether or not to start a family business, several advantages should be taken into account, which contribute to a positive decision. It should be noted that the critical issue in any business model is trust (Ayranci, 2017). There is always more confidence in a close relative than in an employee coming from outside. That is why a family business organiser always tries to put relatives in key positions even though they would need to gain knowledge and skills already in the process of work and learn from their mistakes.
The second positive side of building a family business is mutual assistance based on family ties. Relatives are usually willing to work for a while for free or for a small fee, based on their overall future earnings. Of course, a similar situation is also fair for the interaction of unrelated partners. They can also work for the benefit of the firm free of charge. However, for this work, everyone wants to get their share or profit. From the family business, this problem is solved more easily: members of one family work for the common good, hence most often, one parent will not demand a legally fixed share from the other.
In addition, it is easier to start a family business with relatives. When trying to hire new employees, the employer must invest heavily in the HR department, interviews and training. In the case of hiring relatives, the leader understands who of their close people has the necessary competences, therefore, the issue of training and interviews is solved much easier (Sloan, 2018). This site additionally solves the problem of regular checks and inspections: representatives of the same family do not need to lie to each other if they all work for the family’s financial well-being.
An unobvious advantage of family organisations may be that they teach financial literacy. In particular, children can actively participate in joint business by doing the work available to them. First, in this way, they can develop their abilities, acquire the necessary skills to continue this work in the future. Second, they can learn to recognise the value of money earned by hand. In a situation where a family business lasts for more than one generation, the preservation and development of business help to strengthen dynastic values and traditions. In other words, relatives continue the history of more than one generation of ancestors. It means that mentally people from childhood are set on what they will do in the future. This mindset becomes the key to successful family entrepreneurship.
Disadvantages of Family Business
Despite the abundance of positive aspects, the concept of the family business has some negative qualities. The most important disadvantage in terms of business management is the lack of professionalism of employees (Ayranci, 2017). It is a rare case that all relatives involved in the work of the company are competent specialists in the areas required by the company. Most often, the family is taken as employees, because it is cheaper. An ideal model, where there is a competent director, professional accountant, responsible and qualified employees, with all members of the same family, is almost impossible.
Another weakness of family business is the difficulty of building relationships within the team. At home, a team turns into a family, but at work, the situation changes, and kinship relationships do not always go well (Sloan, 2018). In case of violation of corporate ethics or demonstration of ineffective work, the hired employee can be found to be unprofessional. A relative has hardly been identified as a professional since they were hired, hence it is challenging to tell them that they are not in the right position. Communication within the family is facilitated by years of relationships, but it is also complicated. Poorly chosen verbal wording can ruin not only the company but also the family. In this point, family relationships hurt business communication, which is particularly noticeable in critical situations. In addition, the organisational leader of the family business cannot be fully confident in the employees. Relatives can also betray if they believe that financial or ethical interests exceed personal connections. For this reason, money issues often destroy families and, consequently, companies. If a family business goes bankrupt, the whole family is at risk of falling into a debt hole.
The development of an established family business can be burdened by conflicting relations between relatives. According to Aronoff and Ward (2016), in particular, there may be a lack of business prestige in each other’s eyes. Even the right opinion or business idea presented by a leader who does not have the respect of relatives may be rejected. As a result, it can cause the destruction of corporate culture and the company as a whole.
Possible troubles in business development, especially in case of commercial success, are based on envy. In companies where the salary of each employee depends on the degree of authority and responsibility, the CEO receives more than the manager. In this case, close relatives may envy the more successful employees, which will affect their motivation and willingness to work. This will also not contribute to the further development of the company.
Conclusion
In conclusion, it should be noted that there are no clear theoretical views on the concept of the family business. The decision to create a new business, where the majority of employees will be family members, should be analytically justified. In particular, such a company has both several significant advantages, outweighing the positive answer and several disadvantages. The experience of each company is unique, and what is fair for one family will not necessarily work for another.
Reference List
- Aronoff, C., & Ward, J. (2016) Family business governance: Maximizing family and business potential. New York: Springer.
- Ayranci, E. (2017) ‘Trust issue in family businesses and its relationships with institutionalization’, International Journal of Academic Research in Business and Social Sciences, 7(10), pp. 26-40.
- Sloan, K. (2018) Pros and cons of running a “family business”. Web.