Family-Owned Businesses – Part 1: Unique Advantages and Challenges

When people think of businesses, they often picture large public corporations such as Apple, Google, or Kraft. However, behind the scenes, family-owned businesses — from Prairie farms to manufacturers in Southwestern Ontario — have played a vital role in building Canada’s economy. Consider this: in 2017, family-owned businesses employed roughly 6.9 million Canadians, accounting for nearly half of Canada’s private-sector workforce.[1] Together, family businesses generated close to half of the country’s private-sector GDP contributing approximately $575 billion to the economy. [2] The reach these businesses have throughout Canada is nothing short of remarkable.

In Part 1 of our series on family-owned businesses we explore the unique advantages they offer and the challenges they often face.

What is a Family-Owned Business

A family-owned business is one in which the operation of the company is directed and influenced by members of the same family. These businesses may span one or multiple generations, with family members taking on various roles and responsibilities within the company.  The unique aspect of blending family closeness and business strategy can create a strategic advantage for many family businesses.

Advantages of a Family-Owned Business

Long term vision – Family-owned businesses often have a long-term vision, as it relates to planning and keeping future generations in mind to ensure ongoing growth and future financial stability.  This long-term vision helps the family and business weather smaller economic and industry issues as the long-term goals remain top of mind.

Values – Family members often share similar values – such as commitment, loyalty, trust, and respect which helps foster a strong company culture. The existence of shared values can make decision making easier and fosters adaptability when it comes to taking action.

Community Engagement – Family run businesses have historically had a strong commitment to their local communities by sponsoring local sports teams or through volunteering and fundraising.  This shared community experience often assists in developing and maintaining a strong customer base and solid employee and supplier relationships – all of which are key to long-term business success.

Possible Challenges Faced by a Family-Owned Business

Preparing the Next Generation – Younger family members may not necessarily have the knowledge and expertise to successfully manage or work in the business. The importance of supporting education and training within the family from an early age can help bridge that gap.

Generational divides – Views, experiences and priorities can vary significantly from one generation to the next. If not managed appropriately, generational differences can lead to conflict and can adversely impact decision making if their long-term goals are not aligned.  Family businesses are encouraged to have open dialogue to identify and resolve issues early on.  A consultant or Family Enterprise Advisor (FEA) can help resolve these issues through thoughtful discussions to ensure the long-term success of the business.

Succession planning – This is one of the greatest challenges that family-owned businesses face when they transition leadership to the next generation. Proper planning is imperative for the long-term success of a business and to preserve a healthy family dynamic.  Unfortunately, this planning, is often overlooked, ignored, delayed, or poorly communicated – until sometimes it’s too late to achieve a successful transition.

Family-owned businesses provide employment, support communities and contribute significantly to the GDP. As noted, family-owned businesses face unique challenges such as possible generational divides, lack of experience, and complex succession planning. However, they also offer tremendous benefits – including the ability to work alongside your family who share your vision for success, while also making a positive economic impact within your local community and beyond.

Stay tuned for Part 2 and 3 where we will discuss the hidden value within family businesses in addition to discussing the impact on goodwill value.

[1] [2] https://financialpost.com/entrepreneur/backbone-of-the-economy-report-highlights-impact-of-family-owned-firms.