Chapter 3:The Family-Owned Business:

Understanding the Unique Opportunities and Challenges

Family-Owned BusinessA family-owned business is one that

includes two or more members of a family with financial control of the company.

Family-owned businesses employ 59 percent of the U.S. work force and produce 50 percent of the nation’s gross domestic product. Furthermore, these same businesses are responsible for creation of 78 percent of all new jobs.

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AdvantagesAttractiveness to the individualExternal and internal positive aspectsPositive impact of family values

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Disadvantages• Informal organization• Family disputes• Paternalistic management• Succession challenges

Nepotism

• Nepotism, favoritism of relatives in the workplace, has always been a concern in family firms.

• There are presently no uniform laws regarding nepotism.

• Some companies establish internal anti-nepotism policies.

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Succession

• Succession refers to the transfer of ownership and management of a company from one generation to the next.

• Plans for succession are lacking in most family-owned businesses. Why?• Owners are too busy keeping their businesses

alive to plan for their own exit.• Owners do not have any confidence in the

offspring or relatives who are supposed to replace them.

• Owners do not see family perpetuity as a major concern.

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Succession

• Forcing events cause the replacement of the owner-manager and requires that someone else direct the operation:• Death• Illness or physical incapacitation• Mental or psychological breakdown• Legal problems (i.e. incarceration)

• Implementing a succession plan:• Groom an heir• Agree on the plan• Consider outside help• Consider the future role of the entrepreneur

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