The Challenges and Rewards of Running a Family Business in Ireland

The Challenges and Rewards of Running a Family Business in Ireland

Introduction

Running or managing any business is hard, but running a family-owned business is even harder. Unlike their counterparts in the public-company who mainly focus on increasing their shareholder value, the boards of the family business must take part on behalf of stakeholders with various and possible conflicting agendas, for example, co-partners with equivalent power and entirely opposing financial timelines (Neubauer, and Lank, 2016). Since there are too many complications of interpersonal dynamics in family businesses, the discourse of vital issues like business governance, business growth, succession planning, lending and compensation activities quite often becomes uncomfortable, chaotic, and emotionally draining. It’s not unusual for the directors to flinch from them, and the independent directors follow suit when they do. Learning to move among these issues constructively is one of the biggest challenges that the family business boards go through. This essay will highlight the challenges and rewards of running a family business.

Business Strategy

A more significant percentage of all businesses are family businesses. They sum up for a considerable number of jobs and a more substantial portion of the GDP. However, that is not the only reason why they are essential. As much as they are motivated by profits, there are other vital deliberations, including philanthropy, the pride of the family name, and establishing something for future generations. This contributes in massive ways to social stability. One of the leading factors that lead to the rise of the family business is trust. Family members can trust one another a bit more than they can to the non-members (Hamilton, Cruz and Jack,2017 pp 3-12). However, this trust can wear off when one member cannot perform at the required level; where there is an entitlement sense, laziness and other factors can have serious consequences that can quickly kill the business. The business should keep the communication lines open and always discuss issues of concern as well as important topics, including transition and performance. The roles and responsibilities assigned should be clear for the definition of jobs prevent everyone from wanting to tackle the same problem and aid in ensuring that the business runs smoothly. Keeping useful financial data where there is a single point of contact designated for the management of finances, avoiding the overpayment of family members are some and not hiring relatives that or if they are unqualified are strategies that family business should implement.

Lending Opportunities

Just like many small businesses, the family-owned business seeks business funding so as to expand its operations as well as develop new products. However, business owners quite often take a different approach to fund a family business than the way they do with other startup founders or entrepreneurs they want to keep doing business. Still, they will prioritize hanging on to the management of their company, and contemplate on how their financial decisions will affect the future generations. A family business can have both potential investors and lenders for various reasons. Tight-knit family organizations are more anchored in occasions of transitions, expansion, and economic downturns. This means that a mature family business might be calm for venture-backed growth. Also, even with no previous financing, a family business that is well established can use its strong financial history to give a solid case for a loan or capital investment. One finding the correct source for funding the family business will attain the capital they need for maximizing their growth and ensure that their business is enduring for generations to come (Holt et al.,2018)

Business Governance

One of the critical areas that should be discussed early is the ownership structure of one’s business. More specifically, it should be known who owns what percentage of the company. More likely, this will be dependent on who invested the initial money to get the business running. However, if the funds were initially put up by multiple family members or they later on invested in the business, there should be a clear outline of what percentage of the business each one of them owns. In case it was a loan taken out from family instead of offering equity, then the loan should be handled as if it was from the bank. There should be an agreement on the amount and payment schedule all in writing before the funds are taken from a family member. Notably, who makes the most of the most critical or long-term business decisions is another factor to be considered. This is problematic when one is running a business with a family member; they consider peers, either a sibling or spouse. In case several family members have invested in the company financially, one should ensure that their business responsibilities have been agreed upon by all owners clearly (Aronoff and Ward,2016). Notably, it is also a bit tricky when it comes to structuring fair pay in a family business. How does one set their siblings or a child’s salary?

Moreover, family-owned business owners many at times, cut back on their salary to have more cash on hand in investing in the business. Even though the owner may be comfortable doing this, the children or siblings may not be okay with receiving a pay cut. Also, one may be having family members that are working at the same level as the non-family members. To avoid such issues, business owners must set out what they expect from their employees, both the family and non-family members, from the start. Doing market research on the average pay regarding one’s industry should be one of the expectations. Withal, any business owner who is employing family members who are included in the business owners should make sure that they have clarified their total compensation in order to avoid arising issues later on.

Human resource planning

Human resource is essential in all business, whether large or small. Still, family businesses are unique from the non-family ones and have quite some challenges that are understandable. Family businesses are expected to treat all employees this, including even the non-family members as if they are family—this challenges business owners when it comes to handling HR issues with professionalism. Notably, when family members are working in close quarters, the environment tends to be more volatile because of the comfortability. Still, it can also be viewed as uncontrolled emotions and a decrease in employee morale. There is a lot of vulnerability in family relationships. The members’ reputations are at stake, and also their livelihoods are quite often bound to the success of the business, so they are inspired to maximize the profits of the business. Due to such factors, HR becomes confronted with issues not common in non-family firms. However, the HR function has the means to bring and maintain balance to the family business and have a positive impact on the associations between family and the non-family employees undifferentiated (Dhaenens et al.,2018, pp.46-55). As a small business owner, one becomes concerned with HR management from the hiring of the first employee, be it a family member or not. Notably, even before a firm can afford an HR department, the employees are the owner’s responsibility. Each manager in the family business must be aware of their role in coming up with a great team, being supportive, and bringing up an influential culture for the company. Family businesses might fail to utilize this asset, consigning it to a dry function that administers routine policies, instead of making it a partnership that is value-generating. The success of a family business relies on its people, and the HR is there to boost the team’s effectiveness as well as its performance across the board.

Leadership in Growing the Business

Leadership roles that are poorly designed set up a family business for failure. Whether the family enterprise has a one leader model or a team of leaders, one still needs to develop, structure, and allocate all the required leadership roles. Leading is different from managing or governing people. It is identifying where the team needs to go that is coming up with a compelling vision for the future, strategizing how to get there, and getting people to change to get there. This is achieved by inspiring, motivating, and persuading people to work together to attain essential goals and by coming up with coalitions in support of the needed change. Because the family business is on a long-term focus, the leaders of its industry should be personally compelling and not just good at plan-making and management of activities (Ward,2016). Servant leaders are the typical kind of leaders for a family-owned business. This is so because this type of leader has powerful principles and ideas on how their companies are supposed to be run, how families should behave, and what their co-owners are allowed to invest in. These kinds of leaders have sensitivities and egos. Additionally, they want to do the best for their team; they believe in working together as partners and behave like they are servants of the greater good. The leaders are in a position of making tough choices and decisions to protect the ambitions and standards of the business.

Succession Planning

Just like any other small business, family-owned businesses also struggle with succession planning. For a family business, smart succession planning is what can be the key to maintain the firm into the future and safeguarding it. The problem is; very few owners of family businesses are doing a good job devising to turn their establishments over to the incoming generation. Research suggests that 50% of family business owners planning on retiring in the next five years have no successor in line. If one is interested in passing their business to their children, there are some critical steps that they should partake to involve them. One should consider offering them an internship program or part-time work at the company during school breaks to get them interested in the business while still young. In case the children are already working full-time in the industry, then one should ensure that they are preparing them to take over the family business. There should be a clear-cut path in the position that they can follow. Notably, this should involve letting them taking over more of the decision making slowly so that when one retires, they are ready. Withal, without proper succession planning, the family and its business can end up having legal tangles and heated disagreements on the how and who is supposed to take over and run the business so the plan should be started early (Liegmann and Lau, 2019).

Rewards of running a family business

Despite the challenges mentioned above, there are many advantages to running a family-owned business. First, the branding and marketing one’s business as family-owned can be an advantage for such enterprises tend to be viewed as more stable, trustworthy as well as customer-friendly (Breckova,2016). This can be of benefit to a company’s bottom line where they can feature their story as a firm that is family owned in their marketing. Aside from that, family-owned business is likely to have more dedicated employees. If at all the younger generation have been appropriately prepared, one can also have a successor that is inbuilt for their business, something that most small business owners strive to find. At the end of the day, one gets to work side by side with their family members.

Conclusion

Family-owned businesses are different for their nature is different. The owners share not only an identity but also an emotional relationship. If used constructively, the ownership power gives a right to strategic opportunities and perfuse the businesses’ strategic decisions. The competitive ability, leadership structure and the design of the organization are several strategy dimension that shapes the family’s owning structure, history as well as its character. Family businesses that are long-lasting work hard in articulating policies that govern the interaction of both family and business. Their goal is to harness the family’s positive powers and restrain non-productive family factors. The strategy that is successful and synergistically unifies the opportunities and demands of the market with the business owners’ goals and values. There is no organization that this connection is of more power that when its owner is emotionally interdependent, cautious, and excessively interested than the best example of the family-owned business.

Bibliography

Aronoff, C., and Ward, J., 2016. Family business governance: Maximizing family and business potential. Springer.

Breckova, P., 2016. Family Business in the Czech Republic.

Dhaenens, A.J., Marler, L.E., Vardaman, J.M. and Chrisman, J.J., 2018. Mentoring in family businesses: Toward an understanding of commitment outcomes. Human Resource Management Review28(1), pp.46-55.

Hamilton, E., Cruz, A.D., and Jack, S., 2017. Re-framing the status of narrative in family business research: Towards an understanding of families in business. Journal of Family Business Strategy8(1), pp.3-12.

Holt, D.T., Pearson, A.W., Payne, G.T., and Sharma, P., 2018. Family business research as a boundary-spanning platform.

Liegmann, M. and Lau, S., 2019. History Matters: How path dependence in the family business influence succession planning-A case study.

Neubauer, F. and Lank, A.G., 2016. The family business: Its governance for sustainability. Springer.

Ward, J., 2016. Keeping the family business healthy: How to plan for continuing growth, profitability, and family leadership. Springer.

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