Back to basics: What you need to know about family business

Family businesses are one of the earliest forms of business structure, having been around long before private limited companies and publicly-listed corporations. As a testament to the resilience of the sector, family-owned firms also generate around $4.3 trillion in estimated wealth and typically survive for 32 years, according to Family Business Australia statistics.

But while it can be extremely profitable and stable, there are some things you need to know about family business that differentiates it from other forms of business. D&B has you covered on the following basics:

What is a family business?

A family business refers to two or more family members working in or having a significant influence on a business such as sharing ownership, according to Small Business NSW. Succession planning, or the preparations to pass ownership on to the next generation, is a defining feature of a family business. Other distinctive features of family businesses are the emotional ties between business employees and usually, long CEO tenures. Lastly, a family firm usually has a long-term focus on the future and growth with an emphasis on "patient capital" or long-term capital without an expectation of turning over a quick profit.

What are some of the advantages of starting a family business?

Going into business with a trusted family member elicits a sense of long-term commitment, determination and personal accountability. Because of the family relational bonds, the University of St Thomas in Minnesota's Opus School of Business states that family members have their own personal net worth tied up in the business, and are more likely to want to see their business succeed.

Another advantage is the association with integrity - for instance, consumers are more inclined to place their trust in a father-son duo or a startup run by two sisters, rather than a partnership between two friends. A lack of bureaucracy and red tape also means that decisions and responses can be made quickly and more flexibly.

What are common obstacles faced?

However, many challenges are also associated with family businesses, the most common being miscommunication between family members. A lack of clear, two-way communication can generate inter-familial rivalry, misunderstandings and in the worst-case, dissolving of the business. Leadership can also be an issue, particularly if the CEO has been in his or her position for a few decades and is unwilling to let go. Non-family employees may also feel they don't have the opportunity to move to senior management.

Other obstacles include succession planning, raising sufficient capital for business growth and personal retirement, and the issue of pay for family and non-family employees.

What are some of the key challenges to growth?

A recently-published PricewaterhouseCoopers survey  found that 56 per cent of Australian family businesses grew in 2012, nine per cent below the global average. Sixteen per cent of family firms aimed to grow "quickly and aggressively" over the next five years, but cited the economy  as a major challenge to achieving this growth.

Competitor pricing and the number of competitors  in the market were also cited as significant obstacles to growth, with some respondents indicating they would need to adopt more corporate behaviour to survive in the future. Lastly, the need for innovation and attracting employees with the right skills and talent were mentioned as obstacles to growth - in particular the difficulties around employing non-family members.

What are some successful examples?

Founded in 1915 in Adelaide, Haigh's Chocolates is a successful example of a family business that continues to thrive in today's competitive market. Managing Director Alister Haigh, a fourth-generation Haigh, credits the firm's success to investing in real estate and introducing new products every year to retain customer interest, as well as maintaining quality of their chocolates. Some challenges that have come with growth include maintaining the family culture whilst managing demands from authorities to professionalise the business.

WA fresh produce company, Bell-Vista, is another enduring example of a family business that has survived for the past 19 years. It was started by John Da Silva, who took over sole ownership of a small fruit and vegetable business, and plans to pass ownership on to his sons in the next 10 years. Mr Da Silva believes his success depends on the quality of employees, a passion for the job and the importance of staying focused.

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