Family businesses: their importance and challenges

Family businesses: their importance and challenges

Family businesses: their importance and challenges

Family businesses play a crucial role in the economy and contribute significantly to global economic development. They are represented in many industries and have a particular importance for the economy, society and employment worldwide. This article examines the importance of family businesses, their challenges and provides insights into their development and best practices.

The importance of family businesses

Family businesses are companies that were founded by a family and are family owned. They are managed across generations and therefore often represent long-term investments. Family businesses are widespread in many countries around the world and can come in different sizes and shapes.

Economic contribution

Family businesses make a significant contribution to economic development. According to a study by the Family Business Foundation, around 90% of all companies in Germany were family businesses in 2018. They provide more than half of all jobs in the country and contribute around 60% of the gross domestic product. Similar numbers can also be observed in other countries.

Family businesses not only generate income and employment, but also promote local development. They are usually rooted in their region and support local supply chains and communities. Through their sustainable presence, they contribute to the stability of the local economy.

Continuity and long-term orientation

Another advantage of family businesses is their long-term orientation. Since they are generally not tied to shareholders' short-term profit expectations, they can concentrate on sustainable development and long-term success.

Family businesses can design their corporate strategy with the long-term stability of the company and the needs of the employees in mind. This enables long-term planning and investment in research and development, innovation and employee development.

Corporate culture and values

Another important aspect of family businesses is their unique corporate culture and values. Family businesses are often characterized by strong family values ​​such as a sense of responsibility, trust, solidarity and tradition.

These values ​​are reflected in the working atmosphere and are also transferred to business relationships. Customers and employees often appreciate the personal touch and family business style of family businesses.

Challenges for family businesses

Although family businesses have many advantages, they also face some unique challenges.

Succession planning

One of the biggest challenges for family businesses is succession planning. Only about 30% of family businesses survive the transition to the next generation. The selection and preparation of the successor is crucial to the success of the company.

Family challenges such as disputes or different ideas about company management often have to be overcome. Open communication and clear succession planning can help address these challenges.

Professional business management

Another problem with family businesses is implementing professional corporate structures. Because family businesses are often run by family members, it can be difficult to establish clear roles and responsibilities.

It may be beneficial to bring in outside experts, such as management consultants or external managers, to assist in the transition to professional management and ensure that the company grows and develops successfully.

Financing and raising capital

Family businesses can often struggle to raise sufficient funds for growth and innovation. Since family businesses are often not listed on the stock exchange, they lack access to public capital markets.

It is crucial to find alternative financing avenues to support growth. This may include engaging venture capitalists, issuing bonds, or seeking support from government programs.

Best practices for family businesses

Family businesses can use some best practices to improve their stability and performance.

Professional governance structures

Implementing professional governance structures can bring long-term stability. This includes the creation of a supervisory board consisting of experienced members who can assist in important decisions. A board of directors can ensure that management acts in the best interests of the company.

Succession planning

Careful succession planning is crucial to the success of a family business. This includes the early identification of potential successors and their targeted preparation for taking over the company.

Clear communication and involving all family members in the process can help avoid misunderstandings and conflicts.

Portfolio diversification

Family businesses should consider diversifying their business portfolio to reduce their risks. Incorporating new business areas or physically expanding into new markets can help make the company more resilient to economic changes.

Attract and retain talent

Attracting and retaining talented employees is crucial to the success of family businesses. Family businesses should offer incentives and development opportunities to attract and retain talented employees.

Frequently Asked Questions (FAQs)

What exactly is a family business?

A family business is a business that was founded and owned by a family. The family also usually exercises control over the company and runs it for generations.

What contribution do family businesses make to the economy?

Family businesses contribute significantly to the economy by creating jobs, generating income and supporting local development. They make up a significant part of a country's economy and often contribute significantly to the gross domestic product.

What challenges do family businesses face?

Family businesses face challenges such as succession planning, implementing professional management and obtaining financing for growth and innovation.

How can family businesses improve their performance?

Family businesses can improve their performance by establishing professional governance structures, conducting careful succession planning, diversifying their business portfolio, and attracting and retaining talented employees.

Conclusion

Family businesses have a significant impact on the economy and offer many advantages, such as a long-term focus and a unique corporate culture. However, they also face challenges such as succession planning and raising capital. By implementing best practices, family businesses can improve their stability and performance and continue to play an important role in the economy.