Question

What are the problems you might face in being in charge of running a family business? (30 MARKS)

Answer 1

Introduction

Social categorization of business gave way to a new form which came to be known as family business. Though, in the eyes of the law all types of business are same in nature, fundamentally how these business are managed and the society dynamics play a vital role in managing the enterprise.

A family business is one which is closely held by the members of a particular family. In the starting of the business they hire small number of employees and closely monitor the same. Once the business expands more people are require to manage the business enterprise.

In a typical Family Business one may face the following challenges or problems:-

1) Family business lacks a well defined structure.

While managing a family business there seems to be one common characteristic through which the business is analysed. The structure of family business usually tends to be such that it is not well defined. The roles and responsibilities of the people at work are very limited and people have lesser idea on what their task is.

People can be expected to change their role as the case arises and this tends to be a serious issue in managing the business.

2) Pressure to Hire Members within the Family:-

Managers of a family business usually are expected to hire more people from within the family even when this lead to incompetency within the organisation. As a firm grows it requires more people to be hired and if all were to be from one family the competencies of them cannot be judged adequately.

3) High Turnover for Non Family Employees:-

Employees that do not belong to the family itself feel sidelined in decision making, and as managers they have little say in managing the affairs of the business.

This translates into big issues for the employees who are not from within the family and they tend to leave the organisation relatively faster

4) How Profits are to be divided:-

The basic problem of Family business is that people worry about their own money and expenses at the cost of the organization. The concept of profit distribution is often found lacking in such organizations which leads to problems in overall operational management.

The business owners cannot decide on how to divide profits justifiably which tends to be a big problem.

5) Lacking Exit Plans:-

Most family businesses do not give owners the option of exiting from business as and when they decide that the time is correct. This is not true in other enterprises wherein the owners have a freer hand at disposing of property.

Family business owners in this case feel obliged and are unable to wind up their business as required from time to time.

Please feel free to ask your doubts in the comments section