Family business: what it is, its characteristics and its importance

We explain what a family business is, its characteristics and importance. Also, examples of successful family businesses.

The family business can be inherited through several generations.

What is a family business?

A family business is a type of business organization in which Two or more members of a family group are the founders and they have the majority ownership of the business, that is, the largest percentage of shares, in addition to exercising control over the direction of the business.

A family-owned company is one in which The corporate contribution and investments come from the family groupbut management, direction and handling of financial information depend on employees designated for each area.

Depending on the type of commercial or mercantile company, the company may or may not remain a family business.

For example: In a company registered in a nation such as Limited Liability Company (SRL) partners can transfer their shares to another partner, spouse or children. On the other hand, in a limited liability company, Anonymous society (SA) The shares of a company can be inherited by future generations of the family or can be sold to third parties outside the family group. In the event that a third party buys the majority percentage of the shares, he would become the owner of the company.

Origins of family businesses

The primitive human being changed the nomadic life for a more sedentary one, after discovering the work of the land and the raising of animals. These activities, which required the work of a group of people, allowed them to establish themselves in a place and supply food to all individuals.

With the passage of time and advances in agricultural techniques, Humans learned to live in large populations, to supply themselves with food and to develop the first commercial activities. in which the surplus produced was exchanged with neighboring populations.

Tribes, city-states and great civilizations increasingly gained control over natural resources and the workforce. The means of production became individualized until they became the private property of the most powerful groups.

During the Middle Ages, between the 5th and 15th centuries, the middle class population carried out various economic activities, such as work in the fields or trades that were transmitted from generation to generation. As for minority groups, such as the nobility or the wealthier bourgeois class (starting in the 17th century), families passed power and control of their businesses through lineage, as a way of preserving them in the family.

Currently, The development of entrepreneurial work and family businesses are key factors for the economy of a regionThanks to technological advances and globalization, these are businesses that manage to promote investments and the development of the national industry to satisfy domestic and export consumption.

Characteristics of a family business

Family businesses can be very diverse, from small businesses, ventures or trades to multinational companies. Beyond size and structure, the main characteristics of family businesses are:

• One or more families are the ones that have the highest percentage of shares and control the business decisions.
• Families who own it can transfer their shares to their descendants, as inheritance. For this reason, this type of company is usually controlled by several generations of the same family.
• Most of the management positions are occupied by family members and their succession comes with descendants.
• Small businesses or family-owned enterprises often have informal structures in which the owners themselves and a few employees take care of multiple tasks.
• Small family businesses often resist incorporating specialized personnel to contribute to the growth of the organization, because these are changes that lead to modifying their structure and financial situation.
• Large family businesses have formal structures in which specialized professionals are in charge of the administrative management of the business and of each area to coordinate the work of the employees.
• The level of customer service from family businesses is usually of high quality compared to large corporations, because it is a strategy that they use as a differential advantage to be competent in the market.
• Small family businesses often do not have a formal business plan, and this can slow down their growth. A good business model will allow the company’s management to improve the decision-making process.

Examples of family businesses

Some family businesses have managed to remain such over time, others started as a family activity, but managed to grow, divide, merge with other companies or expand their group of shareholders. Some examples of family businesses are:

• Bimbo group. It is a family business that was founded in Mexico in 1943 by the Servitje family, and which was dedicated to the production of baked goods. Today it has a wide range of products and is present in 32 countries in America, Asia, Africa and Europe.
• Dell. It is a technology company that was started in 1984 by Michael Dell, while he was brainstorming in his dorm room at the University of Texas. Today, the Dell family currently owns 75% of the company.
• Adidas and Puma. Today they are two different companies, but they started as a single family business in 1924 in Germany, with brothers Adolf and Rudolp Dassler. Due to personal conflicts, they separated and created their own companies: Adolf under the brand name Adidas and Rudolp under the brand Cougar.

Importance of family businesses

Family businesses usually impact the growth of a region, because they generate employment, promote national production and boost the economy, both for domestic consumption and for export. This situation is favored by technological advances applied in communications and transportation, among other aspects.

Family businesses constantly face challenges during their development: at the beginning of the activity, when maturing and when seeking to remain over time.

The main challenges of every family business are:

• Developing a business plan. It is one of the most important points that family businesses must address, especially when they are just starting out in the activity. It allows them to clearly define their mission, vision and long-term objectives.
• Accounting and administrative advice. They are services that can be outsourced and that are key for the family business to be effective, anticipate possible problems and last over time.
• The succession of leadersIt is a complex process, because specialists do not always take charge in cases where the management position is inherited by a family member.

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References

• Kachaner, N., Stalk, G. Jr. & Bloch, A. (2012). What you can learn from family business. Harvard Business Review. HBR
• González, J. (2013). Family businesses in Mexico: the challenge of growing, maturing and remaining. KPMG in Mexico. Assets
• Mucci, OO & Tellería, ED (2003). Family businesses: introduction, characteristics and roles. Nulan