Family Business Issues
Family businesses constitute a major portion of the economy of United States and in the European countries as well. Eighty percent of US businesses are family controlled, and this is also true in Europe.
Sixty percent of the total US workforce is in family controlled businesses.
But what is alarming is that 70 to 80% of these businesses fail during their first five years operations. And less 10% of them survive more than 10 years of operation. These show the importance of family businesses are; and therefore- how to manage them properly is a necessity for the economy to survive.
Family business succession is one factor that must be given some importance. Studies show that 70% of family businesses fail to survive the transition of management from the founder to the next generation. This is usually caused by the difference in inclination between the two generations, higher transition taxes and family discords. To manage a family business right, it is important to have a policy that will instill harmony among the owner’s family members.
There are three main issues that must be tackled in planning smooth turn-over of family businesses. These are- management, ownership and taxes. Management can be transferred to just one of the children, but ownership must be fairly distributed to all the heirs. Taxes can be minimized, but can not be avoided. Lawyers and accountants can help in these matters.
The Family Business Environment
In a family business, majority of its shares are owned by one or more family members. They have the authority over the management and operation of the business. In this situation, family business matters are mixed with family members personal concerns. Attempts to alter this situation were found counter-productive in running the business operation.
And also, considering that there are very few high management positions in the business, the anointed successor of the founder has to wait years or even decades, before he can take over the control of the business operation. This stifles the enthusiasms of the eager and talented heir.
This situation is aggravated if the inclination of the young heir, expected to take over the management of the family business, is different from the line policies of the business founder. Or if the young successor is not qualified to handle the management responsibilities.
Other diverse factors also influence family management succession. Environment, technology, public policies and ways of the various generations of the family business members.
The founder usually starts and sets the rules, but if the succeeding generation has different inclinations and ideas, these cause conflicts that will prevent smooth family business succession. The founder tends to hold on the management of the business longer, to the detriment of the family business. Sometimes, the older generation needs to compromise their ways with that of the younger generation’s ways. In many instances, the younger generation have better grasp of the prevailing business conditions.
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