Family-run businesses

Advantages and disadvantages of family businesses

Guide

If you start or join a family business, you'll likely gain some advantages that you often won't find in other companies. On the other hand, you may face issues with family-run businesses.

Advantages of family businesses

  • Common values — you and your family are likely to share the same ethos and beliefs about how to run a business. This will give you an extra sense of purpose and pride and give your business a competitive edge.
  • Strong commitment - building a lasting family business makes you more likely to work harder to succeed. Your family is more likely to understand that you need to take a more flexible approach to your working hours.
  • Loyalty - strong personal bonds mean you and family members are likely to stick together in hard times which can contribute to the long-term success of the business.
  • Stability - knowing you're building for future generations encourages the long-term thinking needed for growth and success - though it can also produce a potentially damaging inability to react to change.
  • Lower costs - family members may be more willing to make financial sacrifices for the sake of the business. For example, they might accept lower pay to help the business long-term or they might defer wages during a cash flow crisis.  You may also find you don't need employers' liability insurance if you only employ close family members.

Disadvantages of family businesses

  • Lack of skills or experience - some family businesses will appoint family members into roles that they do not have the skills or training for. This can have a negative effect on the success of the business and lead to a stressful working environment.
  • Family conflict - conflict can arise in any business. But, in a family business, disputes can become personal as the staff are working with the people closest to them. Bad feelings and resentment could destabilise the business' operations and your family.
  • Favouritism - can you be objective when promoting staff and only promote the best person for the job whether they are a relative or not? It is important to make business decisions for business reasons, rather than personal ones. This can sometimes be difficult if family members are involved.
  • Succession planning - many family business owners may find it difficult to decide who will be in charge of the business if they were to step down. The leader should determine objectively who can best take the business forward and aim to reduce the potential for future conflict. This can be a daunting decision.

For further information see employing family members.