Familybusiness 120703222454 Phpapp02

SYLLABUS
Importance of family business

Types, History
Responsibilities and rights of shareholders of a
family business,
Succession in family business,
Pitfalls of the family business,
strategies for improving the capability of
family business,
Improving family business performance
DEFINITIONS
Family business is a corporation that is entirely
owned and managed by members of a single
family.
Family firm is a corporation that is entirely
owned by members of single family. It is also
known as company owned, controlled and
operated by members of one or several families.
Family business is one in which one or more
members of one or more families have
ownership, interest and significant commitment
towards business.
CHARACTERISTICS OF FAMILY BUSINESS

Family business are ideal in nature as they
are loyal to the principles of the founder and
thus ensure uniformity in their operations.
Succession is one important decision which
determines future effectiveness in terms of
company operation.
family business comprises of family members
in business operations ensuring effective
utilization of in house talent in family.
Single minded dedication of family members
ensures survival of family business through
toughest times.
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Effectiveness and existence of family business
is determined depending on understanding

persisting within the family.
Family business may be comprised of one or
more then one family in business operations.
Family members who are not contributing or
not involved in business are part of business.
Family business values are reflection of values
possessed and followed by family members.
Members of family have legal control over
business.
IMPORTANCE OF FAMILY BUSINESS

Contributing to economic development : family
business play crucial role in economic development of
most of the countries. Retail sector, small scale
industry, and service sector are owned by family
business.
Spirit of entrepreneurship : family business as
contributes towards development and has been
successful in country like India it paves way to various
families to initiate and bring up new ventures in
country.
Philanthropy : family business in India along with
their development have also concentrated towards
welfare of general public by investing on hospitals,
educational institutions, construction of roads etc. E.g.
reliance.
Trust Lowers transaction cost : partnership and
other forms of business involving outsiders usually

leads to conflict in long run. In case of family
business as all the parties in family are affected by
loss incurred in company do not involve any sought
of conflict and difference in point of view arises they
try and solve it internally in the family ensuring
business is not affected by the same.
Small, nimble and quick to react : as managing
team size in family business is small compare to
other form of business decision making process
involves less period of time which helps to take
timely decision.
Information as source of advantage : as family
business is private firm it is not required to take
decision in accordance with pressure from other
sources and strategies of business need not be
revealed to outsiders of business.
TYPES OF FAMILY BUSINESS
TYPES OF FAMILY BUSINESS

Family
owned business : is a profit
organization were number of voting shares, but
not necessarily majority of shares are owned by
members of single extended family but
significantly influenced by other members of
family.
Family owned and managed business : is a
profit organization were number of voting shares,
but not necessarily majority of shares are owned
by members of single extended family but
significantly influenced by other members of
family. In this business has active participation by
one family member in the top management of
company so that one or more family members
have ultimate management control.
Family owned and led company : is a
profit organization were number of voting

shares, but not necessarily majority of shares
are owned by members of single extended
family but significantly influenced by other
members of family. In this business has active
participation by one family member in the top
management of company so that one or more
family members have ultimate management
control. But in this method one member has
major influence on business activities who in
charge of regulating activities of business and
members of family business.
3 CIRCLE MODEL OF FAMILY BUSINESS
Ownership
Family
Business
3 CIRCLE OF FAMILY BUSINESS

Business system : comprises of start up,
expansion, formalization and maturity of
business.
Family system : young business family,
entering business family, working together
etc.
Ownership system : controlling owner,
sibling partnership, cousin consortium.
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GOVERNANCE OF FAMILY BUSINESS

There
are
three
components
to
governance of family business :
1.Perodic assemblies of family
2. Family council meeting : if the size of the
family is small in size,then members of family
can meet on frequent basis, when the
operation of the family business expands
geographically each team has to choose in
representative for every unit who on behalf of
every area can meet on regular basis to
decode on plans, create policies, and
strengthen family business communication.
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Family constitution : family policies and
guiding vision and values that regulate

members relationship in business. Developed
plan may be detailed or simple in nature but
every family is benefited by the same.
BENEFITS OF CONDUCTING FAMILY

ASSEMBLY OR COUNCIL MEETING
Develop
clarity
on
roles,
rights
and
responsibilities of family members.
Encourage members of family,
family
employees and owners family to act
responsibly towards the family and business.
Regulate
appropriate family and owner
inclusion in business discussion.
DUTIES PERFORMED BY FAMILY COUNCIL

MEETING
Plan assembly meetings, which otherwise has to
be arranged by CEO in company.
discuss current business, ownership, family issues
and keep family informed about the issues.
help family reach decisions and collectively focus
on attainment of single goal.
Keep the board of directors informed about family
views on company and keep in touch with the
board about key business policies and plans.
Develop plans and policies in line with the board,
that regulate family activity with business.
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Try avoiding issues in family while seeing that
key family goals are satisfied.

Develop loyal, informed and contributing
family shareholders.
Scout the family for business talent.
Create educational events to encourage
education of family members towards family
business.
Plan family social gatherings and rituals which
help
to
create
healthy,
harmonious
relationship within the family.
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REASONS FOR CONDUCTING FAMILY

BUSINESS
planning employment standards for next
generation
Career
development policies for family
employees
Family employee compensation
Succession process, including retirement ages
Ownership agreements which comprises of
buy and sell agreements
dividends
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HISTORY OF FAMILY BUSINESS

History of family business refers to reason why
business came into existence, vision and mission
of company, people contributions towards
success of business and contribution of business
towards development of society on the whole.
REASONS TO CREATE HISTORY OF
FAMILY BUSINESS
1. Founders vision and mission : refers to
reason why business came into existence,
operations of company under various
leadership and insight about founder and his
vision and mission.
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2. Historical accuracy : without valid information

about family business customers, employees of
business may be biased by wrong information
through other sources about purpose of business
and its contribution towards society to avoid
these problems details of business should be
documented on timely basis.
3. Honouring long time employees : long-time
or retired employees who have contributed
towards success of family may have feeling that
that efforts towards business have been
forgotten. If proceedings of business are recorded
in form of document past employees of company
develop form of belongingness towards company.
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Thanking
customers and vendors :

maintaining good relationship with customers
and vendors specially the ones who have
supported during critical situation is very
important. Owners by documenting these
peoples contribution get way to publically
thank these parties contribution.
Background for the uniformed : new hires,
potential clients, bankers and investors may
not know the company's background during
which documented data of company will
suffice to their needs.
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BENEFITS OF HISTORY OF FAMILY BUSINESS
Interdependence between company and

community is documented as is the owners
individual contribution and involvement in
community affairs.
Succeeding family members have valid resource
from which they can rely on for suggestion to
overcome persisting problems.
Documenting company's contribution
and
commitment to the community builds sense of
confidence among clients, potential clients
which helps in strengthen relationship between
business and key individual related to the
business.
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Content created for books can be recreated
for other media including company brochure,

websites, press release, news letters etc.
Family business that create quality hand book
will always be valued and treasured.
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RESPONSIBILITY AND RIGHTS OF FAMILY

SHAREHOLDERS
Be knowledgeable about company operations
( products, services, locations top managers,
industry, competition, measure of performance )
Have information about basic company finance,
and be able to read and ask questions about the
income statement and balance sheet of their
company.
Attend shareholders meeting.
Understand board member qualification
and
participate, in screening of board members.
Constructively question management and offer
suggestions to management.
Publically support management decisions

Keep
appropriate company information in

strict
confidence
and
recognize
that
shareholders are not entitled to all company
information on demand.
Where possible and useful, generate business
leads.
Try and provide additional investment capital.
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Expectations of family
shareholders from managers of
business
Timely information on company strategy, important
organizational changes and companys basic financial

status before information being released to general
public.
Openness by company board and management to
shareholders on the above mentioned information.
Ability to participate in the election of board members.
Fair policies that protect shareholders interest but also
requires their cooperation and risk taking.
Acceptance economic performance by the company,
including reasonable dividends and capital gains.
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What is a succession plan?

A succession plan is a strategy which
determines the best way for you to exit
your business while ensuring the business
continues. The plan determines who will
take leadership and/or ownership of the
business when you leave. There are two
main options to consider when developing
a succession plan:
Retention planning keep it in the

family
Many owners choose to keep the business
in the family when they leave. If you plan to
transfer your business to a family member
you need to consider the legal obligations
as well as the impact on family
relationships.
Buy-sell planning
(selling the business to external parties,
like employees or businesses)
Buy-sell agreements are legally binding
contracts which control when owners can
sell their interests, who can buy an owner's
interest, and at what price. They are mostly
used to ensure the smooth continuation of
a business after a potentially disruptive
event, such as an owner's retirement,
incapacity, or death.
An interesting story
Few people realize inventor Thomas Edison
gave his son Tom $50 a week to STOP using

his family name. Edisons company,
General Electric became one of the most
successful businesses in the world, yet Tom
Jr. died in obscurity under an assumed
name.
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Do I need a succession plan?

A succession plan is essential to securing the future
of your business. Without a plan, the future of your

business will be left to chance once you've gone.
With so much at stake a succession plan is vital
and will help you to:
maximize the value of your business if you decide
to sell;
unlock that value by enhancing the marketability of
your business; and
exit your business with maximum profitability and
the foundations laid for its continued success.
To be successful a plan should be realistic, workable and
developed with input from groups and individuals who have an

interest or share in the business
There are a few questions to consider when developing your
succession plan:
Who will be your successor?
How much is your business worth?
What sort of management strategy should you adopt for existing
staff to ensure a smooth transition?
How will your departure affect key business relationship such as
suppliers and major customers?
Do you need to establish an estate?
Do you need provisions for active and non-active family
members?
How much income do you need to retire/leave the business?
Family business plan should include

following dimensions
strategies to put business interest ahead of
family business.
Emphasise merit over family position
Income for working members of the family
and shareholders.
The business environment during transition
Treatment of loyal customers
Tax consequences.
SUCCESSION IN FAMILY BUSINESS

1.First family succession plan, then business
succession plan : family business plan must
recognize and accommodate the needs, goals and
objectives of each member of family.
2. Family succession plan has to be developed first
as it is essential to securing the future of the
business. Without a plan, the future of your
business will be left to chance once the business
owner retires.
2. Family first business or business first

family : important issue to be determined
before beginning family succession plan is
whether yours is family first business or
business first family. It is often seen that most
of the business fail to succeed when managed
by second and third generation of business.
3. Succession management : business
families take advice of business advisory
board who suggest on eligible person for
transition. Advisory board are not experts in
managing business but are consultants who
suggest strategies for effective succession
management.
4.Business valuation : may not be formal

written report but is required as part of annual
strategic planning process. Reasons for
valuing family business are as follows :
Buying or selling shares to employees
Retiring or selling to other family members
Planning gifts for heirs
Anticipating estate tax problems
Providing
adequate key man insurance
coverage
Tracking
of
business
plan
towards
achievement of results.
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5. Buy or sell agreement : is used to transfer

share owownership for buy and sell
agreement. This agreement is established
between related parties and shareholders in
family.
It is an agreement to transfer a business
interest to heirs for less than fair market value
The agreement is real ; it is part of bona fide
business arrangements
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KEY POINTS TO BE CONSIDERED BEFORE

SUCCESSION PLAN
Quick decision on business plan process will
provide more alternatives to the process.
A child having right to inherit business should
have ability to manage family business.
Children's must be encouraged to out of family
business so that they have better insight about
competition
persisting
in
market
and
accordingly develop strategies for development
of own business.
Establishing an outsider as advisor for family
business
may prove to be risky for which
experts in succession planning should be
chosen from management team with in the
family business.
Conducting family meeting on regular basis will
help establish and keep the family focused on

rules, goals and objective
Develop non business interest
Develop financial resources that are independent
of business
Evaluate component successor : which requires to
assess whether person to be chosen as successor
has potential to lead the business, will he be
accepted by all members in family, check his
willingness to control the business.
Person who will be chosen as successor should be
give an appropriate standard to be achieved
which will help him deign effective strategy and
have yardstick to compare his actual performance
with expected one.
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WAYS TO EASE TRANSITION PROCESS

Hire most competent advisors ( attorneys,
accountants, financial planners, and business
consultants
for
succession
planning.
Succession planning is complicated process
and requires advice of expertise on the same.
Business
valuation
:
when
business
transition takes place it leads to change in
controlling hands and accordingly even present
situation may change in business. Depending
on the purpose of the valuation, cost vary
accordingly. Usually business owners value
family business for purpose of strategic
planning of their business.
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Funding
to be considered as part of
succession plan : it is important to
understand that business may need to grow
significantly in order to pay the transition cost
which includes which includes tax , insurance,
professional advisors. Funds available for
expansion should be retained in the process
for transition.
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PITFALLS/ DEMERITS /PROBLEMS OF FAMILY

BUSINESS
lack of focus and strategy : family business initially
perform in effective manner but at later point of time
when aspect of transition comes into picture family
business tends to lose its track from its actual vision .
Lack of professionalism : data maintenance
practice in family business usually will not be in par
with that of private companies which proves to be
major hurdle during decision making process.
Difference in educational levels of family
members which drives some people to follow
obsolete method while others may focus on
implementing latest technology and practices in
business.
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Rivalries between sibling in company which
may end up in separation of family business.

Difference of attitude towards employees in
company
Inability to separate family interest from the
interest of business
Short term approach towards business ,
leading to an absence of investment in
employees and product development.
Insensitivity
towards customers due to
uncompetitive market resulting in weaker
market skills.
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APPROACHES TO AVOID CONFLICTS IN FAMILY

BUSINESS
Coping approach : which involves adopting to
negotiation among family members try and resolve
conflict and agree on common terms.
Arbitrary approach : in this approach the elder
person of the family will be allotted with the power
to frame rules and control business activity. But this
approach has not proven to be successful as most of
the time elder person in family may not prove to be
effective manager for business.
Managed approach : this approach states that
person who has ability to maintain better
relationship with key individuals of business and
have ability to understand business and manage the
same should be appointed as lead person for the
business.
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STRATEGIES FOR IMPROVING CAPABILITY OF

FAMILY BUSINESS
Inculcate professionalism in family firms :
professionalism in business refers to retaining of
effective
talent
in
company,
proper
documentation of business transaction, planning
and implementation of efficient strategies for
success of business.
Replenishing entrepreneurship : basically
refers to expand existing business and be role
model for their families to open business of their
own.
Good
management
: refers to proper
communication of information among family
members about present business and utilization
of available resources in business.
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Ability to change : business environment is
dynamic in nature for which business have to

renew their strategies on regular basis to meet
demand of changing situation to compete in
market.
Have strategic plan : situations of business
are unpredictable in nature in nature so present
plans of business should be designed keeping
in point about future strategy in picture.
Have active board of directors : refers to
have competent employees in business who
can assess future requirements and accordingly
management business resources and take
decisions in business.
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IMPROVING FAMILY BUSINESS PERFORMANCE

Core value of family business act like yardstick
for family members to act accordingly towards
business. Core values are comprised of training of
family members newly entering family business,
future, finance and accountability of these members
towards the business.
Impact
of
family
values
on
business
performance : when members of family are clear
about business expectation they can formulate their
strategy well in advance which helps them enhance
quality of their performance towards business.
Training : members of family business should be
trained
about thee family values, competition
existing in market and skills required to be possessed
by in order to have competitive advantage in
business market.
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MANAGEMENT DEVELOPMENT PLAN IN FAMILY

BUSINESS
Management development plan is generated
by top management people in company. The
purpose is to predict staffing needs and plan in for
career growth and development for family as well
as non family members in business.
Management development plan identifies
the key jobs in the current company and
career aspirants of all key mangers. It
predicts what jobs will or should be vacant in
future. It has to focus on balancing development
of hires in business and encourage protective
teamwork.
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Who should create the plan : business plan
should be created by owner manager, human

resource person and top managers from key
functions in business
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CREATING A BUSINESS PLAN

Draw company's five year organization chart.
circle position of future organization chart, at all levels and
the most critical ones for the business.
List the names of individuals in those jobs, their age now
and in five years.
List set of employees who may retire and who are planning
to leave organization in future.
What is the age of owner manager and he should be doing
in future five years.
What is the age of successor and where should he or she be
in five years.
What is best career path for the person in next five years
What policy or policies ca be derived from these
discussions ? What should be communicated to the
successor , manager and employees.
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FAMILY REUNION GAMES TO PROMOTE FAMILY

VALUES
Family reunion basically refers to coming together of
family member for occasion ,event in family. These kind
of events give platform to family members to have
discussion on various matters in relation to family and
family business..
Family bonding : is crucial component of every
successful family. It leads to family communication
system that encourages growth and prosperity for
business while building good bonding among family
members in business.
Family values : influence the way in which family
business is managed and operates. Ethics of family
business are shaped by values of the family.
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Family
religion : plays important role in

operation of business. Business may not prefer
market in certain products which their religion do
not permit for.
Family secrets : may be in form of core values,
ethics and beliefs followed by family members of
business which is not preferred being revealed to
general public or media channels.
Family rules : are implemented in business and
are to be followed people in charge and family
members of the business. These rules regulate
activities of members and family business on the
whole.
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RULES TO SAVE FAMILY BUSINESS

Rule 1
Formulate policy frame work rules
Rule 2
Families must serve the business
Rule 3
Future outlook
Rule 4
Accountability addressing the issue
Rule 5
Rule 6
Addressing the issue
Creating shared vision
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RULES TO SAVE FAMILY BUSINESS

Formulate policy framework and rules :
succession plan is one of the important aspect for
formulating
policy
framework
and
rules.
Succession plan should outline exactly how the
transfer of leadership will occur and should
establish the criteria that hires must meet before
moving to role of leadership.
Families must serve the business : members
of the family should give their best performance
as per the expectation of the company. Members
of the family business should perform as
effectively as non family members of the
business.
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Future outlook : business firms should have
proper core values which prove to be yardstick for

performance of business. Family members should
believe that present strategy prove to be obsolete
in long run for the same company should be
flexible in nature in terms of adjusting to changes
taking place in business environment.
Accountability : should be one of the major
criteria for transition process in family business.
Family members should be made clear about what
is expected from them by family business and
they are required to prove their efficiency through
effective performance. They should be responsible
for decision taken by them during time of their
leadership.
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Addressing the issue : family business who
focus on improving their overall company

performance should take structured approach
through addressing the issue by careful
examination of its core values. Members of the
family are required to evaluate their core value
and understand their relevance in relation to
success of business.
Creating
shared vision : it refers to
communicating vision , objective of the company
to family and non family members of business.
Communication of information takes place
through various sessions of meeting in company.
All the family members should have common and
shared vision towards goal attainment in
company.
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THANK
YOU
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SYLLABUS

Importance of family business

CHARACTERISTICS OF FAMILY BUSINESS

Effectiveness and existence of family business

is determined depending on understanding

IMPORTANCE OF FAMILY BUSINESS

Trust Lowers transaction cost : partnership and

other forms of business involving outsiders usually

TYPES OF FAMILY BUSINESS

TYPES OF FAMILY BUSINESS

Family owned and led company : is a

profit organization were number of voting

3 CIRCLE MODEL OF FAMILY BUSINESS

3 CIRCLE OF FAMILY BUSINESS

GOVERNANCE OF FAMILY BUSINESS

Family constitution : family policies and

guiding vision and values that regulate

BENEFITS OF CONDUCTING FAMILY

DUTIES PERFORMED BY FAMILY COUNCIL

Try avoiding issues in family while seeing that

key family goals are satisfied.

REASONS FOR CONDUCTING FAMILY

HISTORY OF FAMILY BUSINESS

2. Historical accuracy : without valid information

customers and vendors :

BENEFITS OF HISTORY OF FAMILY BUSINESS

Interdependence between company and

Content created for books can be recreated

for other media including company brochure,

RESPONSIBILITY AND RIGHTS OF FAMILY

Publically support management decisions

appropriate company information in

organizational changes and companys basic financial

What is a succession plan?

Retention planning keep it in the

gave his son Tom $50 a week to STOP using

Do I need a succession plan?

of your business. Without a plan, the future of your

To be successful a plan should be realistic, workable and

developed with input from groups and individuals who have an

Family business plan should include

SUCCESSION IN FAMILY BUSINESS

2. Family first business or business first

4.Business valuation : may not be formal

5. Buy or sell agreement : is used to transfer

KEY POINTS TO BE CONSIDERED BEFORE

Conducting family meeting on regular basis will

help establish and keep the family focused on

WAYS TO EASE TRANSITION PROCESS

PITFALLS/ DEMERITS /PROBLEMS OF FAMILY

Rivalries between sibling in company which

may end up in separation of family business.

APPROACHES TO AVOID CONFLICTS IN FAMILY

STRATEGIES FOR IMPROVING CAPABILITY OF

Ability to change : business environment is

dynamic in nature for which business have to

IMPROVING FAMILY BUSINESS PERFORMANCE

MANAGEMENT DEVELOPMENT PLAN IN FAMILY

Who should create the plan : business plan

should be created by owner manager, human

CREATING A BUSINESS PLAN

FAMILY REUNION GAMES TO PROMOTE FAMILY

religion : plays important role in