Family business facts for kids

A family business is a company where a family has a big say in how things are run. This family influence often comes from several generations. They are usually related by blood, marriage, or adoption. These families want to guide the business and often have special goals for it. They are very connected to the company, either by leading it or owning it.

What is a Family Business?

Family businesses are the oldest and most common type of company in the world. You can find them everywhere, from small shops to huge international companies. Many of the world's biggest businesses are family-owned. For example, Walmart in the United States and Volkswagen Group in Germany are family businesses.

It might surprise you how important these businesses are to the economy. They create lots of jobs and wealth. Many large companies that are publicly traded (meaning their shares can be bought and sold by anyone) actually started as family businesses.

In a family business, family members often work in the company. They might be managers or even the top leaders. This can make the company strong because family members are often very loyal. However, it can also cause problems if family feelings get in the way of business decisions.

Common Challenges

Family businesses can face unique problems because family life and business life mix.

Money Matters

Sometimes, what the family needs for living expenses might clash with what the business needs to grow. For example, the family might want to take money out of the business. But the business might need that money to stay competitive. This can create a conflict of interest.

Nepotism

Nepotism is when family members get special treatment or jobs just because they are family. This can be a problem in family businesses. Giving jobs to family members who are not the best fit can make other workers unhappy. It can also hurt the company's performance.

Different Goals

Family members might have different ideas for the business. One family member who owns part of the company might want to sell it to make money. But another family member who works there might want to keep it. They might see it as their career and hope their children can work there too.

Three Circles Model

Imagine a family business as three overlapping circles:

• Family
• Ownership
• Management

This model helps us understand the different roles people play.

The Family Circle

This circle includes everyone in the family, across all generations. Some family members might never own shares or work in the business. Family members often care about the family's good name and staying united.

The Ownership Circle

This circle includes everyone who owns shares in the business. This can be family members, but also outside investors or even employees. Owners are usually focused on how well the business is doing financially.

The Management Circle

This circle includes the people who run the business day-to-day. This often includes people who are not family members. Family members can also be part of management. Managers care about the company's reputation and their own career opportunities.

Sometimes, one person might be in all three circles. For example, the person who started the business might be a family member, an owner, and a manager. These people are very connected to the business.

Family Tree for Business

A genogram is like a super detailed family tree. It shows not just who is related to whom, but also how they get along. For example, it can show if relationships are close, difficult, or if people are not talking to each other. This tool can help understand family patterns over many years. It can also explain why people in the family business act the way they do.

Family stories or "myths" are beliefs shared by the family. They can help the family deal with stress and work together. But sometimes, these old stories can make it hard for the family to change and adapt to new situations.

Planning for the Future

All businesses need to plan. But family businesses have an extra challenge: they need to balance the needs of the family and the needs of the business. Here are five key areas where they need to plan carefully:

• Capital: How will the business's money be used? Will it go to the family or be reinvested in the company?
• Control: Who makes the big decisions in the family and the business?
• Careers: How are people chosen for important jobs in the company or family?
• Conflict: How can disagreements be handled so they don't harm relationships or the business?
• Culture: How will the family's and business's values be passed down to new owners, employees, and younger family members?

Being Fair

Fairness is very important in family business decisions. If decisions feel fair to everyone involved, they are more likely to be accepted. A "fair process" means involving family members in steps to solve problems. This helps the family stay involved and supportive for many generations.

Understanding Emotions

Family businesses often face emotional challenges. The feelings within the family can greatly affect the business. Sometimes, the biggest problems are not about business, but about family emotions. Many years of hard work can be lost if a family doesn't deal with these feelings. Understanding how family dynamics work can help them prepare for changes and problems.

Passing On the Business

Succession is the process of passing the business leadership and ownership to the next generation. Two main things affect this:

• The size of the family and the business.
• How ready the next leader is, in terms of skills and commitment.

It's often best if the succession is planned ahead of time. The current leader slowly gives power to the new leader. This can take several years. The old leader might even stay on as an advisor.

Keys to Success

For a family business to succeed, the people involved need certain skills. They need to be able to balance the different interests of family members and the business. They also need good character and a strong commitment to making it work.

Family-owned companies can be unique. They often have their own special ways of doing things. This is fine as long as the people running them understand these traditions.

Sometimes, family members can get help from different professional advisors. These experts can offer skills in areas like communication, conflict resolution, finance, law, and strategic planning.

The way ownership is set up can also show how mature a business is. If one person owns all the shares, the business might still be in its early stages, even if it makes a lot of money.

Examples of Family Businesses

Images for kids

• 

  Congresswoman Pelosi greets employees of McRoskey Mattress Company, a family-owned, San Francisco mattress manufacturer founded in 1899.

See also

In Spanish: Empresa familiar para niños

• Bamboo network
• Nepotism
• Palace economy