20 challenges faced by a family owned business

17 08 2006

Every business organization has a unique set of challenges and problems. The family business is no different. Many of these problems exist in corporate business environments, but can be exaggerated in a family business.

Family business go through various stages of growth and development over time. Many of these challenges will be found once the second and subsequent generations enter the business.

A famous saying about family owned business in Mexico is “Father, founder of the company, son rich, and grandson poor” (Padre noble, hijo rico, nieto pobre). The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and and empty bank account.

Prepare now and help your grandson avoid the poorhouse.

20 challenges for the family business

  1. Emotions. Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.
  2. Informality. Absence of clear policies and business norms for family members
  3. Tunnel vision. Lack of outside opinions and diversity on how to operate the business.
  4. Lack of written strategy. No documented plan or long term planning.
  5. Compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.
  6. Role confusion. Roles and responsibilities must be clearly defined.
  7. Lack of talent. Hiring family members who are not qualified or lack the skills and abilities for the organization. Inability to fire them when it is clear they are not working out.
  8. High turnover of non-family members. When employees feel that the family “mafia” will always advance over outsiders and when employees realize that management is incompetent.
  9. Succession Planning. Most family organizations do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions.
  10. Retirement and estate planning. Long term planning to cover the necessities and realities of older members when they leave the company.
  11. Training. There should be a specific training program when you integrate family members into the company. This should provide specific information that related to the goals, expectations and obligations of the position.
  12. Paternalistic. Control is centralized and influenced by tradition instead of good management practices.
  13. Overly Conservative. Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation.
  14. Communication problems. Provoked by role confusion, emotions (envy, fear, anger), political divisions or other relationship problems.
  15. Systematic thinking. Decisions are made day-to-day in response to problems. No long-term planning or strategic planning.
  16. Exit strategy. No clear plan on how to sell, close or walk away from the business.
  17. Business valuation. No knowledge of the worth of the business, and the factors that make it valuable or decrease its value.
  18. Growth. Problems due to lack of capital and new investment or resistance to re-investment in the business.
  19. Vision. Each family member has a different vision of the business and different goals.
  20. Control of operations. Difficult to control other members of the family. Lack of participation in the day-to-day work and supervision required.
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