Question

2. Tabulate the difference between family and non-family owned businesses.(30MARKS)

Answer 1

ANS.

Family business integrates the business life into the family. The principles in which the family business operates differ when compared to non-family business. As a result, operation and performance of family firms have developed into key study interest for scholars. Businesses is important to economies by generating income, providing goods and services and taxes to the government. The key aspect for comparison between family business and non-family business include performance, business lifespan, organization culture and founding principles. The studies on these aspects are important because about 11.5% of families in the U.S own at least one business.

The main aim of businesses is to make the profit regardless of the structure of ownership. Thus, whether a business is family owned or non-family owned, any institution attains the tag business based on merchandise turnover or services for profits. The management structure introduces an array of approaches that affect the performance of that business. The extent of such performance determines if any model should be considered superior based on economic and financial results presented by a company. Though the need to make the profit is shared by both family and non-family businesses there are a number of differences between the two.

there are differences between founders of the family business and the founders of the non-family business. Family business indicates more dependence on family social capital that is important in controlling business performance cognitively and physiologically. Family founders face more conflicting family and business environments when compared to non-family business founders. During formation, founders of family business operate in an unguided internal business environment. Entrepreneurs are influenced by beliefs, goals and perceptions. These characteristics affect the rationality of the founders. To non-family business founders, there is less attachment to the business. For them, existing experiences is less threatening when compared to family founders. The study strengthens a phenomenon whereby family-run businesses tend to be conservative with investment decisions.

Family business and non-family business face the same economic performance with reference to short-term sales. They, however, found out that the effect of the sales was a function of strategic planning for which non-family firms are likely to benefit from more than family firms. Within the agency perspective, the owner of the business can comprise standards in the business or extend a spot to family members thereby introducing agency costs that impact negatively on the business. Thus, agency costs can impose a barrier in the development of firms. The agency problem greatly increases with the succession of the business. The existence of such cost reduces in non-family firms. Family business and non-family business differ in the span of their business life.

Family business and non-family business have various key differences. However, they share the same goal in the business where firms have to fulfill the obligations to obtain profits. In terms of performance, family business outperforms non-family business since the businesses are greater risk takers. Any business plan is designed to prevent bankruptcy. Further, the responsibility to succeed falls on the owner who bears the full responsibility, unlike the non-family run business where managers have little or no responsibility for business failure.

In conclusion, family businesses are the greater performer than non-family business. However, the performance of the businesses, in this case, is measured in terms of bankruptcy and risk-taking. The most striking observation is the likelihood of a family owned business breeding entrepreneurs from the children than non-family business. Family businesses encourage entrepreneurship culture. The children can, therefore, consider other investment destination including non-family businesses. Thus, family businesses are great tools in expanding economies by building an investment culture.