Answer to Question #318137 in Management for Pema

Question

What are the differences between the workings of a family business and those of a typical non-family-owned professionally managed business?

Answer 1

A family business is a commercial organization in which decision-making is influenced by multiple generations of a family, related by blood or marriage or adoption, who has both the ability to influence the vision of the business and the willingness to use this ability to pursue distinctive goals. Professionally managed companies are run by the professionals who are also an employee of the company (not the owner). These professionals may or may not have any significant stake in the company. Below are some differences between family business and those of a typical non-family-owned professionally managed businesses.

• Family personnel always have their interests strongly aligned with the firm and follows long-term strategies to achieve the goals of the firm, unlike the professional CEO's who strive to make short-term profit figures that decides their compensation and commissions.

• Professional run businesses are more likely to take risks hence they have higher gains or losses but a family run business is less likely to take a risks they generally have more stable profits.

• A firm is classified as a family firm when the family possesses the majority of the shares and perceives the firm as a family firm. Non-family firms are defined as firms that do not perceive themselves as family firms, and in which a family does not own the majority of the shares.

• Family businesses tend to be far more adaptable and can change more swiftly and effectively to changes in the economic climate, within the industries they work within and tune into what their customers want by ensuring they are relevant unlike professionally managed businesses.

• While the family firm is controlled by the family, the new model companies are in their first generation, so control still rests with the founders.