Family Business Definition

Family Business Definition

Family Business Definition

Family business is a form of business that involves some family members in business ownership or operations. Another limitation about the company was given by John L. Ward and Craig E. Arnoff. According to him, a company is called a family company if it consists of two or more family members who oversee the company’s finances.

Whereas according to Robert G. Donnelley in his book “The Fanily Business” an organization is called a family company if there are at least two generations involved in the family and they influence company policy. So it can be concluded that family business is a form of business that involves some family members in business ownership or operations.

Family Business Forms

Effective or not the role of the family in the company can be seen from the following three forms of family business. The characters of these three forms are not the same. that is;

  • Family owned business (FOB). In the FOB family form, it is only as a shareholder, the management of the company is left to professional executives from outside the family environment, and other relatives do not take control of the company.
  • Family business (FB). On FB, the family acting as a shareholder also takes care of the company, meaning the company is owned and managed by the founding family members.
  • Business family (BF). The form of a family BF company as a company owner tends to emphasize kinship only.

In building a business with family or partner, it must first clearly define the family business form, namely family business or business family.

Both forms of business are different, FB emphasizes more on the professionalism of the operating family or professionals who work in the company. While BF, emphasizes family relationships. Even though the business is managed with family, the company still has to apply the principles of good corporate governance (good corporate governance).

Along with the growth and development of the company, it is not uncommon for family companies to “change shape” from FB to FOB, for example: Salim Group, Lippo, Bakrie Group, Ciputra, and others. Whatever form or class of family business is chosen, the family must be able to overcome a number of problems that often arise, including issues of leadership, conflict, succession, transparency, competition and corporate culture.

Motivation of people to open a business with family varies, some want the family business as the main source of income, while others only for side, channeling interests and hobbies, or continue the family business.

Family Business Benefits

Problems related to family business can easily blind young people to take advantage of business. Many of the benefits associated with family involvement should be recognized and used to recruit family members to work in family companies.

The advantage comes from a strong relationship, family members are attracted to business because of the bonding out. Starting from a small business with family – with a husband, child, or relatives can be a unique challenge.

On the other hand, this is also very helpful for matters of trust and a great way to get all family members together for the safety of the next generation. The main advantage of running a business with family is the trust that is not obtained from a family-oriented business. Because of this family trust and relationship, family members can work harder and do not need legal contracts and other issues related to employees. Another advantage is that, despite the many arguments, families have a tendency to remain united in difficult times. This is because each member has more understanding of other family members, and has arguments, cooperation, and negative experiences together. Apart from all the advantages of having a family business, there are a number of things that must be considered:

  • Mixing business with personal and family matters can have a negative impact on family relationships. Make sure you make clear boundaries about where and when you can talk about business.
  • Make sure that communication is not an obstacle. Hold regular meetings to discuss developments and differences of opinion.
  • Treat family business as it should. The problem that often occurs in family businesses is that it focuses too much on ‘family’ rather than business.
  • Make sure that everyone has a clear role. This will help to grow the business environment.
  • Family members who are in business must be treated fairly. There should be no favoritism in business. Fair salaries and benefits can be a good starting point.
  • Try to develop a change plan. Who will take over the business after you retire? For example, is your child or your child? This is with the assumption that your brother and you have ownership shares in the company.
  • If your child will join the business, try to get them to experience outside the family business for 3-5 years before they join. This will give them valuable perspectives or views about how businesses should be run outside of family settings.

Problems that often arise in the family business, especially the problem of professionalism, finally myths arise, “first generation builds, second generation enjoys, and third generation destroys”. And, leadership problems in family companies, conflict problems that often occur in family business, succession, competence, and culture in family companies as an offer of a new paradigm in the family business. All this is nothing but a counter attack on myth: “first generation builds, second generation enjoys, and third generation destroys”.

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