Considering investment in a family business considerations
Investments in a family business
When it comes to family businesses, things can get messy. There have been several instances in history where family-owned significant corporations have had to face complications due to their family relations. For example, the case of Kellog Brothers, who fought nearly a decade long battle when claiming the owner rights to Cornflakes. Likewise, the creation of the two biggest shoe brands- Puma and Adidas- resulted from the rivalry between two German siblings- Rudolf and Adi Dassler. Unfortunately, the great Warner Bros. Studios have not been exempt from such family issues. You can learn more about these cases by checking out here.
Nevertheless, despite what the media has portrayed over time, the truth about family businesses can be quite different. There are several benefits to starting a family business. It makes hiring and servicing easier as you already know those who are working with you very well. You know your team’s strengths and weaknesses and can assign roles to them accordingly. Additionally, retiring from a family-owned business also comes easy. You can be your own master and can decide to step down whenever you feel ready to. And even when you do retire, you can be assured that you are leaving the business in safe hands, with the people who have learnt from you. You can always share your experiences and keep an eye on the operation even after retirement. However, there are some times you should tread lightly when it comes to a family-owned business. This guide details all the dos and don’ts of running a family business.
Why should you invest in a family-owned business?
Yes, family businesses can be tricky. There are always possibilities for feuds and scandals, but a family business can do wonders if operated correctly and with discipline. Here are a few reasons why you might consider purchasing a family-owned firm.
- A treasure trove of wealth and experience- One thing that is valued the most in a business setting is a person’s experience. The more time a person has been in business, the more aware they will be of all the market’s curveballs. Family businesses come with this wealth of knowledge when creating, managing and dealing with their business operations. So the chances of the corporation suffering due to the lack of management or experience are rare.
- The pandemic effect- Ever since the COVID-19 pandemic has taken over the world, there has been a steady, yet drastic increase in the number of entrepreneurial pursuits. Most of these ventures are family-owned. As an investor in the current market, family-owned businesses tend to show the most potential. That is one reason to consider investing in them.
- Standing the test of time- Family-owned businesses have been around for centuries. As an investor, you can be confident that they will withstand the test of time and will be resilient enough to recover from any potential harm.
- Family dynamics- In a family dynamic, some things you can almost expect every single time are the shared value of commitment and loyalty. These are values that pay off in the long run. As an investor, you should be looking to invest in people who have strong character and integrity. Family businesses tend to be more accountable given their ownership, considering the family dynamic.
Things to consider while investing in a family business
You should think about a few things before investing in a family-owned firm now that you’re aware of some of the advantages.
- If you are an outside investor, there are some things you need to be aware of when investing in a family business. Unlike other companies, the central control lies with the family when dealing with family enterprises. An investor can expect to receive the market rate of return when investing in a family business, but the ultimate control lies with the family at the end of the day.
- The investor should also be aware of the conversations and discussions between the family and the investor. Generally, there is a chance that the investor’s idea of a rate of investment is different from that of the companies.
- There is generally a level of informality when dealing with family-owned businesses. Given that the company ultimately runs on the ideas and opinions of the family members, it can get tricky for a business-oriented investor.
- As an outside investor, you might not always be privy to the internal dynamics of the family uni. Hence it would help if you did your research before investing in a family enterprise.