Advantages and disadvantages of a family business

A family business is not all good and not all bad. It can be a great idea or a downright horrible idea. Like anything, a family business has both advantages and disadvantages. The best you could do before starting a family business is to know all the pros and cons and prepare yourself for the road ahead.

A family business can work for you, but it also can ruin you. The best you can do is to prepare yourself for it.

A family business has its pros and cons, and I can't blame you for the reservations that you feel in setting up one.

On the surface, starting a family business company seems like a good idea — young family members don't need to worry about applying for jobs. You work with people you know very well and you can trust. However, what binds a family enterprise together can also be the wedge that can tear it apart. Family dynamics inevitably impact on the operation of the family owned business. Personal and business problems are intertwined so that they are extremely difficult to identify, much less resolve.

Upsides and downsides

We hear horror stories about families feuding about money, commercial decisions, succession, etc. However, for every horror story, I think you would find a success story — where families are able to make a go of an enterprise without undermining their relationships.

You might wish to meet with your brothers to weigh the advantages and disadvantages of setting up a family enterprise. Here are some of them:


1. Family members behave as stewards of the business and its capital needs for the benefit of the next generation. So they tend to take a long-term view regarding their investments.

2. Hiring family members means hiring people who are more committed to the success of a business than when they are ordinary employees. When things get tough, they will do what is needed to make it work.

3. Often a family business defines success not only in terms of profit but also in providing employment and benefits to the community. A business, as your brothers said, can offer employment to qualified relatives and opportunities to bond with them as well as put cherished beliefs into practice.

4. Other advantages include having shared values, improved customer relations through family contract, and long-term stability.


1. A business can be a breeding ground for family problems: jealousy, anger, resentment. There is less reservation about letting feelings out among family members and family problems can easily spill over into the workplace.

2. The manager of a family business may be hard put turning down relatives as employees regardless of lack of qualifications. Relatives who are allowed into the company may abuse family ties and feel that they can under-perform simply because they are relation.

3. Some family members, especially the elderly, may find it difficult to retire and let the younger members take over.

4. Other disadvantages include possible managerial incompetence, lack of exposure to other business, nepotism, and inability to separate family and work.

Preparing Yourself

Assuming that you've decided to go for it after weighing the pros and cons, you need to prepare for your multi-faceted role. You should look at your family history for clues as to what might happen and prepare for this.

It is possible to avoid potential problems and legal disputes by taking legal steps from the start. There should be a strategy to cope with internal disputes and provide the mechanism for its modernization even against the will of some family members. Consult a lawyer for the inclusion of an exit strategy that will safeguard its long-term future.


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