Pros and Cons of Keeping a Company Family-Owned
Family-owned businesses are a staple of the United States economy. According to GrandValley State University, 5.5 million family-run businesses in the US contribute to 57% of the nation’s GDP. These businesses also employ 63% of the American workforce.
The signs are that number will keep rising as more people see the benefits of keeping the business in the family.
Are you considering starting a family-owned business or transitioning to one? Here are some advantages and drawbacks you should consider before making a decision.
The Pros of a Family-owned Business
Higher Level of Stability
The most significant benefit of family-owned businesses is the stability it provides. The positions of each member typically determine leadership in a family business. Usually, only life events such as death, illness, scandals, or retirement can trigger change.
Otherwise, the business leader remains in the position for many years. Because of this, family businesses are generally stable and have longevity in leadership. As a result of this stability, partners, employees, and customers feel more at ease.
A Personal Connection to the Business
Since family-run companies are passed down through generations, the successor usually retains the founder’s passion for the business. It may be because of this that many family-run companies succeed.
The level of commitment and desperation for success is different from a non-family-owned business. For instance, this family-owned firm embodies the founder’s life and business philosophy. Their commitment to excellence has lasted many generations so far.
It is Flexible
Families frequently wear several hats and take on tasks outside their formal duties. In contrast, non-family businesses tend to have clearly defined responsibilities for every role.
Also, family members are more willing to make personal sacrifices to keep the business afloat during financial trouble. For instance, many family-run companies have had to resort to delaying collecting several financial entitlements till the company recovers.
The Cons of a Family-owned Business
Limited Management Diversity
A family-owned business may have limited management diversity due to the preference for hiring family members. This can lead to a lack of new perspectives and ideas and determine the growth potential.
A Challenge to Separate Work and Home
You may find yourself bringing work home and family issues to work in a family environment. Any disagreement between you and your spouse or family may affect your business and drive customers away.
In addition, succession is also another con of family-owned businesses. Most times, the business leaders stay too long that they cannot entertain the idea of retiring.
As a result, it can lead to problems in management. This becomes an even bigger problem when the next in line is not bold enough to step in and continue the family’s legacy and the company.
It Can Cause Hard Feeling Among Other Employees
Things can quickly escalate if your family member isn’t your only partner or employee, to the point that others resent their exploitation of your relationship. So don’t give the impression that your family member takes precedence over other employees or partners merely because they are family members.
A family-run business has its perks, like flexibility, loyalty, and longevity of leadership. But it also comes with challenges, like limited management diversity, succession issues, and strained relationships with other business partners or employees. Before leaping, weigh your options and determine which path is right for you.