The Challenges Faced by the Family Business - Research Paper Example

Family Business Executive summery This paper is majorly going to look at the family business. Most of the big international companies that are seen today like BMW and Ford were started just as a family business. However, through effective management of the business, the business grew into an international company. Some of the contributing factors to the success were the clear company vision and mission, effective management of the business and the succession planning of the business. This paper also covers some of the challenges faced by the family business which majorly comes from the family its self. Furthermore, these challenges may also come from the key stakeholders like the employees. If these challenges are not properly handled, they can contribute to the collapse of the business. These challenges can only be solved through communication. The owner of the business may initiate communication by the members of the family and the stakeholders to solve the issue at hand. Contents Executive summery 2 Contents 2 Introduction The family business has no legal definition, and most people or commentators provide a variety of different ways of defining it (Danes, Haberman, & McTavish, 2005). Some people have given a broader definition like any business that regards its self as a business of a family. This so even if the family members are no longer part of the management of the business or are not anymore involved in the ownership of the business. In short the culture of the family business is enough for a business to qualify to be called a family business. In many economies around the world, family businesses are becoming very important. Their global economic growth sustainability as the business family of today carries the economic creating of wealth in most of the countries around the global. In the United Kingdom, a great number of businesses are categorized as a family business (Morck, & Yeung, 2003). In many places, a family business is same as most of the business organizations as a means of utilizing the available wealth creation opportunities to provide for the financial well-being of the family. Most of the organizations that are successful such as Ford, BMW, Wal-Mart, and Carrefour were mostly started by people who went on to build the Empire of their families (Allio, & Allio, 2005). It can be concluded that family business plays a vital role ion the development of the economy. This is not only through the contribution of their business but also creating an environment for investment that is transparent, safe, open and secure. Lit is important to consider different factors when talking of family business. These factors may include the family business three circle model, its strategy and structure, the stakeholders and finally the business succession plan. The three circle model Family business faces various challenges. These challenges come from ownership, that family, the roles of business involving conflicting goals, action and values (Kellermanns, Eddleston, Barnett, & Pearson, 2008). These may include issues such as family members prioritizing emotional capital. The executives in a business are majorly concerned of social capital and strategies. This is to mean their major concern in any business is its reputation in the marketplace (Enock, & Basavaraj, 2012). Business owners are mainly concerned with the financial capital which is mainly wealth creation performance. The three – circle model is usually used to show the three principle role in business that are owned or controlled by families. It entails the family, ownership, and management. The three- circle model indicates how the duties may overlap. Every generation always belongs to a family circle. However, there are family members who will never have shares in the business of a family or even get a chance to work there. The members of the family are concerned of dividend, family unity and social capital (Poza, 2013). The circle of ownership may include the members of the family, employees owners, and investors. The owners are mainly concerned with the capital of finance which mainly includes the dividend and performance of a business. Finally, the cycle of management mainly include people who are not members of the family business. However, the employees may also be composed of the members of the family. The employees are always concerned with the social capital which is mainly the companies reputation and the emotional capital that is mainly measured in fare performance, bonuses and career opportunities. The people who may include either the senior member of the family or the founder may hold all the three roles of owner, family member, and employee. These persons are highly connected to the business of the family and are concerned with the sources of value of the business (Melin, & Nordqvist, 2007). Vision of the Business To make a perfect branded, stir- fry and provide a healthy catering company in United Kingdom. To be leading in providing fast and great food, entertainment and a friendly service that is efficient (Temujin, 2015). Mission of the Business The mission of the business is to ensure that every visitor gets a quick, friendly, and professional service. To provide our guests and staffs with a clean and healthy environment that is well maintained. To avail our guests with nutritional, well prepared and fair price meals using quality gradients (RMS, 2015). Structure of a Family Business This organization structure is courtesy of Restaurant Owner.com, 2015 Shareholders of the Family Business The ownership of a share in the business of the family is dependent on the policy of the family on the ownership of the share. Furthermore, this also depends if the family has placed any restrictions on the persons who are to buy the family business shares. The family company can have views that are different when it comes to the issue of share ownership. Some of the families have policies that the only family members allowed to own shares are those working in the family business. However, other family businesses have a policy that the shares of the company can only be held by the bloodline family members and that employment is not a condition for ownership. In some families, shares can also be owned by non-family employees or in-laws (Lambrecht, & Lievens, 2008). The terms of becoming a shareholder If a person becomes a family company shareholder, he or she has entered into a contract with the company that he will be a shareholder on the terms and condition provided with the family company. The term of the family membership may be supplemented by the agreed terms of the family charter or the shareholders. The person will be issued with the certificate of share and the register of members (Becht, Franks, Mayer & Rossi, 2010). Furthermore, the name of the person will be included in the legal member register kept by the company. Being a shareholder will also become an issue of public record. This is because, in due time, the name of the person will appear in the file of the company that is kept by the companies registrar (Othman, Ghazali & Sung, 2006). The share certificate needs to be kept safe. Even though the company will provide a new certificate in case of the disappearance of the old one, but the person will be asked to sign insurance. This will be mainly to cover any loss caused to the company as a result of the successive discovery of the old one. The difference between issuing and transferring shares There are different ways of becoming a shareholder. The company may decide to give out new shares to a person. This may only be possible if the amount paid by a person for the shares goes in the bank account of the company and forms part of the companies capital share. Anther way a person may obtain the company share is only when the existing shares are transferred to that person. For example, the transfer of shares is seen when the shares are transferred to another person by another shareholder person. The transfer of shares is always approved by the board meeting directors or by the board authorized committee. Most of the businesses will not easily provide new shares. This is because these new shares dilute the equity stakes of the existing holders of the share. A stamp duty is not to be paid any share issued to a person. Stamp duty is only paid on a share obtained by another shareholder, and this will be on the purchased price. Stamp duty does not also exist on gifts of shares (Liu, 2006). Succession planning of a family business Step one: initiate discussion with the stakeholders It is vital for a person to speak with his or her spouse, the business partners, other members of the family, children and the key stakeholders such as managers and employees. This is necessary to learn their thinking and their understanding of succession planning. The family should be a special consideration, is should be considered whether the family member is playing an important role in the business or not. All of the family members should be included in the initial planning. This gives all the members of the family to give out their opinion and concern about the business. The business may consist of family members as employees, family shareholders, and family children who are thinking about working for the business. Earlier communication will ensure all arising issues are heard. During the process of communication, some of the things that can also be tabled are the responsibilities, expectations and roles. Finding out what the family members expects from a business or a person will help in reducing the unexpected surprises down the road (Gallagher-Ford, Fineout-Overholt, Melnyk & Stillwell, 2011). According to the Business Development Bank of Canada, Family members can be involved in a discussion. This may be involving the in a discussion during a family retreat or involving an outside consultant to interview the members of the family. The outside consultant may be vital as the family members may be willing to talk to him or her as compared to you. The family council can also be created to develop a common vision and also to help develop a succession plan (BDC, 2015). Step Two: Assess current circumstances of the business and take inventory It is obvious that most owners of the business are determined to manage their business well to fund their retirement. Because of this it is important for a person to know his or her likability and the base of the current asset. If a person understands his or her financial position, he or she will evaluate the business and determine the most effective structure for the business. This is as simple as formulating the list of what a person owe and what he or she won. Step Three: the advisory team Development. Despite of the business size, ever person will need a team of experts they trust to assist in the succession planning. The priority of a person plan will dictate whether he needs a small or big team of trusted advisors. The advantage of an advisor is to get advice that is timely. The advisers are vital because they will also assist in keeping the tracks. Some of the profession that can help in a business includes tax or corporate accountant, corporate lawyer, banker, succession co-ordinator or business advisor and insurance advisor. Tax or corporate accountant In every business, there is always an external or internal accountant that understands the account of the business. Accountants are always important in any of the succession team and must always be advised of the planning intentions. The accountants will help access the financial picture of the business so that the next step can be planned. The accountant may help with the following; the business valuation, business planning, planning of the tax liability, corporate restructure of the business, the exit strategy (Blackburn, Eadson, Lefebvre & Gans, 2006). Corporate Lawyer Corporate lawyers can help in the development of the agreement of the shareholders. This may include the buy-sell agreement, settle any arising disputes, business plans. Lawyers are important players when it comes to developing ownership structure and can also provide advice on legal issues (Strine, 2005). Banker It is vital to consider the purchase option of a successor. The banker is very important as he or she can determine the way in which the successor can be assisted financially when it comes to the purchase of the business. Succession coordinator or business advisor While working through the planning process, business advisors will allow a person to focus on the daily issues. Furthermore, the can coach a person through difficulties during the process of succession (Zutsln, Creed, Rmger & Osborne, 2013). Insurance advisor The insurance advisor will help in the determination of the business insurance solution and needs. Insurance consideration includes life insurance, business insurance, critical illness insurance, disability insurance, and key person insurance. Insurance is vital for an organization because they can assist in; creating retirement liquidity, provision of finance for the family in case of death. Furthermore, it can provide the will for the business to ensure immediate business continuity, funding a buyout. Finally, it can also assist in provide the family with finance in case of disability or serious illness (Arun, & Steiner, 2008). Step Four: Plan writing After understanding the idea about the succession plan preparation, there is need to know the people who need to be involved. In addition, what is to be done and the involvement of others is also vital to be known. Although there are different succession plans, there are twelve components that are critical that creates an effective and a complete plan. These twelve critical components may include; the personal and business objective and goals, SMART goals (Prather, 2005), exit strategy, Business value, Business structure and organization, Legal and tax consideration, estate plans, success selection, contingent plan, conflict resolution, timeline, communication plan. Step Five: Plan Implementation Doing everything at a time is not possible; however it is vital to get started. However, some of the components need more planning as compared to others. Hence, it is possible to start the implementation of part of the succession plan before the completion of the entire plan. Step six: plan review and modification A successful person does not lock the plans away. He or she should understand that things change very quickly in the todays business world and also in the life of a person. There is a need for the plans to be reviewed once a year. Conclusion Family business majorly contributes to the growth of a family and a country in general. It is an important business entity hence should be operated like other entrepreneur businesses. If it is properly managed, it can be very successful. The business should ensure that the business has a clear business vision and mission. A clear business vision and mission will direct the employees to focus on. The direction provided by the vision and mission lead the business to success. For a success in a business, clear vision and mission is a priority that should be taken seriously by the business owners. Succession planning is also vital in a business. This is so as the successor determines the future of the business hence the need for an effective succession. Recommendation For any business to prosper in the world of today, communication is an important issue. This is the only way a business can tackle the issues that arise. In case of any change in the business, it is important to inform all the three parties in that business. These three parties will include the all the members of the family, the owners of the business and the employees in that business. This will provide a chance for the peoples views a perception about the company to be heard. Appendices SMART- Specific, Measurable, Attainable, Realistic, and Timely BDC- Business Development Bank of Canada RMS- Restaurant Mission Statement Bibliography ALLIO, M. K., & ALLIO, R. J. (2005). 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