Differences and Similarities Among Family Business and Non Family Businesses

Family business organization chiefs are more than concerned with successors, long-term stability, and achieving personal wealth than their nonfamily business counterparts. This according to this year's Pulse of the Heart Market place survey conducted by BDO Seidman, a national accounting and consulting business firm based in New York City.

This year Family Business magazine asked that an actress question be included on the annual questionnaire: Are you a family concern? A majority — 57 percent — checked yes, giving us a rare chance to directly quantify the differences between how family and nonfamily businesses pick their successor, concentrate their direction time and energy, and derive personal satisfaction. Of the 1,650 respondents, representing the top spots in companies with revenue between $2 1000000 and $100 million, more than than 70 pct reported sales of $24 million or less. Some highlights:

Senior members of family businesses are more probable to have selected a successor than those in charge of nonfamily businesses. They also are more diligent when it comes to putting their plans in writing.
The family concern managers measure out their success on inner criteria such as lifestyle and personal relationships, rather than on outer measures such as adoration and recognition by their peers, their organisation, and community.
Acquiring other companies, going public, or spending time on marketing and developing strategic plans are less important to family businesses than they are to their nonfamily counterparts.

OLDER CHIEFS
"In a family run business organisation the CEO tends to just hang on longer," says Herb Goldstein, caput of BDO Seidman'southward management services division, which conducted the survey. One reason may be that family business chiefs, most of whom programme to pass the company on to a family unit member, find it difficult to grant consummate authority to their children or other relatives. They tend to have more difficulty separating their role as parent from their role as business owner, and view retirement every bit severing family connections.

LESS Instruction
Fewer family business executives have continued beyond college, with 24 percent of those responding doing post graduate piece of work, compared with 40 percent of nonfamily business people.

This is non surprising. For one, the family business respondents were older; when they joined or founded their visitor, MBAs were not de rigeur. As well, many younger family unit business members tin't finish school because the family unit needs them to compression hit after a relative gets sick, or to just plain assistance out. The instruction gap probable contributes to the cliché that family businesses tend not to be "professionally" run.

AGE AND Analogousness
Just equally with the age of executives themselves, family unit companies also tend to be older than nonfamily firms. One likely caption: Young nonfamily companies, which take not withal reached their start succession hurdle, may non beginning out with the vision of passing the company on to their children, but may end upward doing so and become family unit companies down the road.

Most 70 pct of family firms are in traditional manufacturing and wholesale trades; there are half as many family service companies (20 percent) as nonfamily (43 percent).

HIGHER SALARIES
Family unit business owners also similar to live well. They pay themselves lavish salaries: twenty per centum earn $300,000 or more in total compensation, compared with 14 percent of nonfamily executives. Nonfamily members cannot pay themselves as generously, surmises BDO'southward Goldstein, because "they are more concerned about the scrutiny of outsiders, while those in family businesses don't take those worries. If they accept a board of directors at all, it may be heavily stacked with family members."

DISAPPEARING WOMEN
There was no significant divergence between the number of women at the highest ranks of family and nonfamily businesses, but among mid-sized companies overall, there has been a gradual reject in women at the top. In 1987, half-dozen percent of respondents to BDO's survey were women.

That slipped to 4 percent concluding twelvemonth, and 3 percent this year. None of the BDO Seidman experts interviewed could explain this regression.

SEEKING SUCCESSORS
More than family business organisation owners accept given idea to succession than nonfamily owners. About threescore percent of family firms accept identified a successor, although but 47 percent of them have worked on an actual programme. Nonfamily businesses are less certain about their successors — merely 40 percent accept someone in heed, and 33 percent have a plan. Still, the group as a whole is improving: Since just terminal year, at that place has been a ten percent improvement in the number of all mid-sized companies that take put a succession plan in ink.

STABILITY OVER GROWTH
Center market companies share a growing business concern about a credit crisis. About eighty percent of all respondents await banking company loans to be more than hard to obtain during the next year, with family and nonfamily respondents weighing in equally. On average, 73 percent of all companies surveyed expect the terms of loans to go tighter, 19 pct believe the terms will remain the same as last twelvemonth, and vii.vi percent say terms will get easier.

Despite their credit concerns, more than than half of all companies surveyed expressed interest in acquiring some other company in the next three to v years — no significant change from terminal year. Slightly fewer family businesses — 51 per centum — are interested in playing the takeover game, while 57 percent of nonfamily businesses are surveying the field.

"Growth and expansion are more than important to nonfamily businesses," says Goldstein. Family businesses tend to exist more conservative in their borrowing practices and growth plans: They are more interested in preserving the business concern for time to come generations than they are in building a behemoth corporation.

Instruction may also play a role: With more than nonfamily businesses managed by people with post-graduate degrees, BDO's Goldstein notes, "I would call up that the manager with an MBA is going to be more interested in the growth of the company through acquisitions, while the family unit businessman is focusing on issues such equally profitability and how well the family unit members are doing personally."

ROLLING Upward THE SLEEVES
"Family business respondents devote a larger portion of their time to 'inside' functions, such every bit manufacturing, assistants, and finance," notes Goldstein. They spend slightly less time managing people than their nonfamily business counterparts. All the executives seem to want to reduce their fourth dimension and endeavor in these areas.

Both family and nonfamily respondents spend nigh equal amounts of time in outside functions, such as selling and marketing. Family and nonfamily leaders think they should spend more fourth dimension on these efforts, but they differ on how much. Family concern execs want to triple the time they spend on selling and double their time on marketing. The reverse is true of nonfamily business people, whowould like to double their fourth dimension selling and triple their time marketing.

I estimation: Marketing is more of a cerebral exercise, involving inquiry and strategic planning. Nonfamily business organisation people, with their higher post-grad population, are more inclined toward such activities. Family business organization managers are renowned for beingness hands-on, for believing that they are the simply ones who tin can get the task washed. That may business relationship for why they desire to sell, sell, sell, instead of pouring over strategic marketing reports.

-- J.P.

WORRIED ABOUT CREDITIs it as bad for you lot equally it is for me?

Recently, the accounting firm Grant Thornton surveyed mid-sized companies near their economic outlook, Fully two-thirds of the 250 manufacturing companies polled, with revenue between $10 million and $200 million, were family unit owned.

The most startling finding: family firms are far more pessimistic about their own profit motion picture than nonfamily companies. Withal, they are no more concerned about the economy as a whole.

"Family-owned businesses are more likely to rely on traditional forms of financing, such as commercial banking concern loans," explains Dominick Esposito, managing partner of Grant Thornton'south New York part. The recent tightening of the credit markets, doubt almost interest rates, and the dubious position of banks themselves are bound to compression family unit businesses harder than nonfamily manufacturers.

"Even though family firms are no more than or less worried nigh the economy, it makes sense that they are more concerned about their own health than their nonfamily counterparts, who generally accept more diverse sources of funds, including broader equity ownership and venture capital," Esposito says.