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A family business is business with one family retaining the bulk of the majority shares, a member of the family being involved in the management and involving more than one generation. A family business can be a partnership, a company or a limited liability partnership. Strong points of family business include passion and pride in the business, superior inclination to reason about the business and make investments for perpetuity, and the desire to maintain long-term relationships with customers. Weakness includes absence of succession planning, lack of clear cut difference of what belongs to the family and what belongs to the business and the problem of attracting and retaining executives who are not family members.
The main points are:
1. Family businesses are economical at all times.
The owners do not waste money by investing in non-profit and making contributions to building luxurious houses. They always keep their expenses under control to prevent wasting the family money.
2. Family businesses maintain high capital expenditure
They are strict and only invest in strong projects that promise high returns in future. They choose to forego opportunities during expansion, thus underperform but avoid crisis in times of economic recession.
3. They always have little debt.
Family business considers debt to be source of fragility and risk and thus do not take many loans. They also see debts as non-family money that should always be minimal.
4. They acquire less number of new companies.
Family business prefers joint ventures and partnerships to acquisitions because of the integration risk. Family business owners feel that acquisitions come with high risks and come with large awards. They do not prefer acquisitions because they can come with a down turn and change the corporation culture and fabric more, which are the main identity of any family business.
5. They are diversified.
Most of the family business is diversified, for example, LG makes phones and other electronics such as TVs. Diversification enables them to handle recessions when they occur.
6. They are more international
Family business invests more in outside countries through small acquisitions and surprisingly generates more sales, for example, Samsung. They are extremely patient in entering a new market to prevent loosing money.
7. They have low turnover of employees.
There are fewer turnovers of employees compared to the other non-family businesses. They enjoy the benefits of having an employee for a while such as high trust, familiarity in coworkers behavior and decisions, thus having a strong culture. They always are high reliable employees who sometimes may be not the best brains out there, but are more committed to their work. They mainly focus on creating a culture of commitment and purpose, thus do not offer financial incentives to motivate the employees work.
The basis of information
The author has collected their information from various sources:
Interviews from different business owners and managers. This data is credible and logic because it is what actually happens in the family businesses. For example, a CEO told the author they have one simple rule they do not spend more than they earn.
The opposing position of the information presented
Less turnover of employees makes family business to hold on an employee not because they fir best to the business, but because they want to maintain the company culture. Thus, they lack to have new and great talents.
They have a constrained potential growth since they focus on maintaining loyal family, customer and supplier relationships other to exploring opportunities available.
Investing in strong projects sometimes does not necessarily mean they will succeed in the long-run, thus the family business should invest in the short-run projects, which can greatly increase their capital structure.
The extra information needed to be gathered
The weakness of family business
Secondary information from previous studies that have observed performance of both the family and non-family business.
The features of non-family business
The other information that relate to this discussion include
Actual examples of the performance indicators of the family and non-family businesses to support given information.