kids encyclopedia robot

Family business facts for kids

Kids Encyclopedia Facts
This page is about enterprises controlled by families. For entities that manage the affairs and estates of prosperous families, see family office.
For other uses, see Family business (disambiguation).

A family business is a company where a family has a big say in how things are run. This usually means family members, like parents, children, or even cousins, are involved in making important decisions or own a large part of the business. These businesses are often passed down through generations. They are different from other companies because the family's goals and values are closely tied to the business.

What is a Family Business?

A family business is one of the oldest and most common ways to organize a company. Many businesses around the world, from small local shops to huge international companies, are family-owned.

These businesses are very important to the economy. They create many jobs and help build wealth. Even though they are common, people sometimes don't realize how big of a role family businesses play. This is because many of them are privately owned. This means they don't have to share as much information about their money as public companies do.

In some countries, even very large companies listed on the stock market are controlled by families. For example, some of the world's biggest family-run businesses include Walmart in the United States, Volkswagen Group in Germany, Samsung Group in Korea, and Tata Group in India.

Touring a Family-Owned Business in San Francisco (5062988548)
Congresswoman Pelosi greets employees of McRoskey Mattress Company, a family-owned, San Francisco mattress manufacturer founded in 1899.

In a family business, family members often work in important roles. They might be managers or even the main leaders. Family members are often very loyal and dedicated to their company. This can make the business stronger. However, it can also create special challenges. This is because the needs of the family and the needs of the business can sometimes be different.

Challenges for Family Businesses

Sometimes, what's best for the family might not be what's best for the business. For example, the family might need money from the business for living expenses. But the business might need that money to grow or stay competitive. When these needs don't match, it can cause problems.

One common challenge is Nepotism. This means favoring family members for jobs or promotions, even if they are not the most qualified. This can make other employees feel unfairness. It can also create tension and make it harder for the company to do its best work.

Family members might also have different ideas about the business's future. One family member who owns part of the business 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 or hope their children can work there someday. This can lead to disagreements within the family.

Understanding Family Business Roles

It can be tricky for family businesses to balance the different roles people play. These roles include being a family member, an owner, and a manager. Each role has different goals and values.

A helpful way to think about this is using the "three circles model":

  • Family Circle: This includes everyone in the family, across all generations. Some family members might not work in the business or own parts of it. Family members care about their family's reputation and staying united.
  • Ownership Circle: This includes everyone who owns a part of the business. Owners care about the company's financial success and how much money it makes.
  • Management Circle: This includes people who work in the business, whether they are family members or not. Managers care about the company's daily operations and its reputation in the market.

Sometimes, one person can 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 Businesses

A genogram is like a special family tree for a business family. It shows not only who is related to whom, but also how family members get along. For example, it can show if relationships are close, difficult, or if some family members don't talk to each other. This tool can help understand family patterns. It can also help explain why people in the family business act the way they do.

Planning for the Future

All businesses need to plan, but family businesses have an extra challenge. They need to plan for both the business and the family at the same time. There are five key areas where family and business needs often overlap:

  • Capital: How should the company's money be used? Should it go to the family or be reinvested in the business?
  • Control: Who gets to make the big decisions in the family and the business?
  • Careers: How are people chosen for important jobs in the company or family leadership?
  • Conflict: How can disagreements be handled so they don't harm the family or the business?
  • Culture: How are the family's and business's values kept alive and passed on to new generations?

Fairness in Decisions

Fairness is very important when making decisions in a family business. If decisions feel fair to everyone involved, they are more likely to be accepted and supported. A fair process helps make sure that family members, whether they are owners or employees, feel heard. This helps the family stay involved in the business for many years.

Dealing with Emotions

Family businesses often face emotional challenges. These are not just about business problems, but also about feelings and relationships within the family. If a family doesn't deal with these emotional issues, many years of hard work can be lost. Understanding how family feelings affect the business can help them prepare for big changes and other problems that might come up.

How Businesses Change Over Time

When one person owns and runs a family business, they usually balance their personal needs with the business needs easily. For example, the founder might decide the business needs a new building. They might take less money for themselves so the business can save up for the expansion.

But balancing these interests becomes harder in a few situations:

  • When the founder steps back: If the person who started the business wants to involve others in managing it, they can't just make decisions automatically anymore. They need to be more careful about balancing their interests with the business's needs.
  • When multiple people own the business: If several family members own the business, and no one person has all the power, they need a system to agree on what's best. For example, if a founder gives the business to four children, some of whom work in the business and some who don't, they need a way to make decisions together.
  • When owners are not managers: If some owners don't work in the business, their interests might be different from those who do. They might want to sell the business for profit, while those working in it want to keep it going as their career. They need a system to talk about these differences and find a balance.

Passing on the Business (Succession)

Succession is about passing the leadership and ownership of a family business from one generation to the next. Two main things affect this process: the size of the family and the business, and whether the next leader is ready to take over. This includes their management skills and commitment.

It's important for the person taking over to have good experience. If the succession is planned well, both the current leader and the new leader are usually happier. The current leader slowly gives power to the new leader. This can take several years. Eventually, the new leader takes full control.

Keys to Success

For a family business to be successful, the people involved need to have the right skills, character, and dedication. They need to be able to balance the different interests of family members and the business itself.

Family-owned companies can be unique. They often develop their own special ways of doing things as they grow. This works well as long as the people running them understand these traditions.

Sometimes, family members can benefit from getting help from different experts. These experts might help with communication, solving disagreements, managing money, legal issues, or planning for the future.

The way ownership is set up can also show how mature a business is. If one person still 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

See also

Kids robot.svg In Spanish: Empresa familiar para niños

  • Bamboo network
  • Nepotism
  • Palace economy
kids search engine
All content from Kiddle encyclopedia articles (including the article images and facts) can be freely used under Attribution-ShareAlike license, unless stated otherwise. Cite this article:
Family business Facts for Kids. Kiddle Encyclopedia.