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8 Common Challenges Every Family-Owned Business Faces (and how to overcome)
8 Common Challenges Every Family-Owned Business Faces (and how to overcome)
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Money Management

8 Common Challenges Every Family-Owned Business Faces (and how to overcome)

Money254
Doreen Gathoni
January 28, 2022

As the name suggests, the business jargon term ‘‘family business’’ is defined as a business that is actively owned, operated, and managed by two or more members of a single-family, who are family members or related by blood, adoption, or marriage.

Many local and international family businesses are responsible for revolutionary and notable social and economic impacts, for example, Chandaria Industries, Walmart Inc., L’Oréal S.A, Royal Media Services, Naivas Supermarket, Dell Technologies Inc. just to name a few.

However, like any other business, it is not without its challenges – some rare and some common - yet a business is expected to adapt and excel. Here’s a look at eight of the most common challenges facing family businesses today.

1. Family Conflict Due To Entitlement & Individual Opinions 

The conflict and rivalry overpower and different resources are how the lack of trust and unity is the start of any family’s business downfall. 

Consequently, this takes away valuable time, money, and effort from constructive focus negatively affecting efficient decision-making.

Recommendation: 

  • Get ahead of any complications by fostering an open-door policy – for all to respectfully share comments, suggestions, and /or complaints

NB: Often the fall-out of family businesses are due to years of ignored or hidden strife that is long overdue for solutions

  • To be an effective leader, consider everyone’s opinion (not just your relatives). That means, also considering outside expert counsel on how to identify and handle different aspects of your business, including the emotional components per scenario

2. Informal Culture & Structure

Unlike other businesses, family-owned entities may have a higher tendency of being laid-back on the formalization of processes and decision-making.

This can quickly turn into trouble especially where more defined rules of engagement are lacking when the business expands and takes on more demands and resources. 

  • Say, business XYZ chooses to hire more employees without defining company policies and staff guidelines; consequently, poor management and disregard of official documents, policies, and communication (internally and externally) are highly likely occurrences

Recommendations:

  • Before you start any business, have a clear organogram – that is, have a clear outline of an organizational structure, which shows the line-of-authority and each business’s job title/position’s responsibilities  
  • Just as important, is having contingency plans in the event of succession disputes, misconduct, calamities, and any other possible factors by setting legal, up-to-date business policies

NB: Make sure everyone working in and with your business and clients have access to your business policies. This promotes accountability, which is key and it starts with knowing what is expected of oneself and others

3. Biased Employment Of Family Members

When it comes to entrusting your business with others, a 360° business approach is mandatory, especially to effectively deal with the pressure of relatives expecting you to hire them (regardless of them being a good fit or not).

Recommendations:

  • Be firm and fair

Managing employees and maintaining good human resources practices are challenges in any business but do not exempt your relatives from the business’s rules

  • Aim for sustainability

Having a 360-degree business approach means you are able to create a central source to access all business information from customers, business affiliated external parties, and staff. This requires streamlined SOPs (standard operating procedure) for data-supported decisions

4. Lack Of Relevant Training 

It is key to note how this challenge differs from point.3 in its origin story, so to speak.

Inadequate training becomes a significant roadblock, when a family starts a business based on misguided motivations, such as following a market trend, ego, desperation, blindly accepting to buy a business because you can, and so on.  

For example, hiring a family member who does not have accounting or finance training as the head of your accounting department, as a favour to your in-laws, over hiring a certified/qualified accountant who is or is not a relative

Recommendations:

  • Always aim to set and grow an amicable formal culture to stomp out a lax and rigid corporate culture, from setting in. 

For instance, provide regular and mandatory staff training for new staffers and refresher training for existing employees in customer service training as a value-add option for your professional reputation by improving your business’s internal and external communications, for brand reputation

  • Only hire with practicality and sustainability in mind. This means, hire based on job description qualifications and personality fit into your business culture
  • Create-and-sustain’ corporate development via training at every level of expertise (from intern to executive levels, where everyone must participate) 
  • Ensure that all legal documentation, especially employee contracts, are up-to-date and legal. The law exists to protect your rights, do your part and you’re covered even in worst-case scenarios

5. High Turnover Of Non-Family Employees 

If you’ve worked at a family-owned business, you’re probably more familiar with the stifling or “walking-on-eggshells” vibe, in some instances.

Often due to the ensuing tension, non-family employees may feel that career advancement and fair representation is threatened or non-existent within the business, especially where family disputes spill over, affecting everyone.

To avoid and effectively respond to solving the challenge of attracting and retaining high-quality labour, here is what you could do. 

Recommendations:

  • Keep your family affairs a family affair

That means all family quarrels and differences should not be discussed or expressed in the workplace

  • Remember to be firm and clear

Personality clashes are the norm of life and family members are rarely the ‘angels’ on-board but with employee conduct policies in place, it's fairly easy to be fair, direct, and timely about dealing with cases of defiance, in different situations

  • If it is especially hard to remain impartial, seek a qualified HR agency to handle part / all human resource tasks of your business or businesses.

Asking for help could be the smartest move yet, after all just because you can hire doesn’t mean you know best

6. Business Growth Opportunities 

It’s important to note that there are business owners who have mastered their business and are content with the scale of their business, as is.

Problems often arise where an existing business scale is no longer “okay” - that is, when a business has the option to downsize or expand, which poses a challenge on the distribution or redistribution of resources.

For example, having to overcome the reluctance to reinvest and/or invest into the business, financiers or banks hesitation to finance most family businesses due to high risk unlike non-family businesses

Recommendations: 

  • Refer to your business budget (F.Y.I  every department and/or business must have a budget or budgets as required for allotted and controlled resource management)
  • Explore different financing options specific to business growth. Don’t miss out on opportunities to take your business to the next phase due to limited capital due to low profits, low investor contributions (and so on). Research and choose from available SME, MSE, and large enterprise financing options that provide practical options to suit your business goals 
  • Be true to yourself 

In cases where privacy is a very personal affair, hesitation is often due to the owner or shareholders experiencing personal discomfort about having their assets in the spotlight (kind of like a jab to one’s comfort zone).

Once you’re aware of the discomfort, don’t be dismissive, rather be patient or opt for resolutions that are more peaceful. 

Where pushback is intense, consider moving the timeline or moving on from the idea; if it will keep the business(es) flowing and harmonious (revisit the idea later) 

7. War Of The Ages

Though often a recipe for lengthy conversations and conflicts - Different generations. Different perspectives often mean different priorities 

Where businesses lack teamwork, the right ideas are ignored and uninformed ideas are more likely to play out.

To deal with differing opinions, each party can align and work towards mutual understanding for seamless, progressive results. Here are some ways to do so:-  

Recommendations: 

  • Understand your competitors business journey’ so you can appreciate and gain insight for a balanced overview of your business against the competition
  • Seek external help / outsource external expertise to align or realign communications’ on how to respect everyone’s views plus how to do the profitable thing, without undermining anyone 

NB: It may sound redundant but it deserves a mention, “Asking for help is a win-win for everyone”

8. Inheritance (Who Gets What & Why) 

NB: Before we get into it - If you don’t have a legal document regarding your business’s future get started on it

For those who do have legal protection concerning their business or businesses – this doesn’t cancel out the possibility of disputes over the value of your business and how it is to be divided. 

Recommendations:

  • Get an expert valuation of your business to get its right value. This quickly eliminates assumed value-related arguments
  • Plan for business succession. By clearly defining the value of your business, you are able to determine how to split the profits of the business or owners’ stakes
  • Always have an exit plan

True…some start a business with the intent of retiring or selling their business but whatever your decision your business must have a defined strategy for what will happen upon your demise, when you retire, in the event of illness or incapacitation, when you sell the business or transfer ownership and/or responsibility 

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Think, Act & Grow As One Team On One Mission

Every business needs a plan for every stage of the business - that is conception, development, execution, and all future stages of your business. 

The above are some of the most common challenges of family-owned businesses and it is also worthwhile to note that they and other challenges aren’t impossible to avoid and/or correct. So, stick with it. 

Don’t lose hope & kudos’ to you for contributing to your family’s financial freedom and the economy too (now cherish and protect it).

Gathoni is a skilled content developer with over 5 years of experience in content development as a graphic design and copywriter, in different industry sectors. Her passion to nurture positive, stronger, communication impact continues. You can find her on LinkedIn here.

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