What Even is a Family Business?

Although often talked about and mentioned, little thought is given to what a familiy business actually is.

Just entering the phrase “what is a family business?” into google, returns a number of, more or less, random definitions, such as:

• “A family business is a commercial organization in which decision-making is influenced by multiple generations of a family—related by blood or marriage (https://en.wikipedia.org/wiki/Family_business)

• “A business actively owned and/or managed by more than one member of the same family” (https://www.entrepreneur.com/encyclopedia/family-businesses)

• “Company owned by one or more family members. In some cases, a family business may be owned by more than one family.” (http://www.businessdictionary.com/definition/family-business.html)

The first definition focuses on the decision making or control aspect while the next definition emphasizes the term “actively owned” and the following definition adds “…more than one member of the same family”. The last of the above definitions reduces the family role to “ownership”.

Considering just these few definitions, it becomes clear that there are a vast variety of possible definitions. That is what makes it so difficult as there is obviously no right or wrong answer.

I just recently listened to a discussion in which one of the participants talked about a client meeting in which he was trying to pitch his family business advisory services to the business owner who clearly rejected the presumption that the business was a family business even though his wife owned 50% of the shares.

The question came up whether the business was not a family business because the business itself did not define itself as such? Clearly denying the fact is of no real direct consequence but may have implications on how and what decisions are taken which in turn affect the rest of the family.

Consider a business that is owned by only one individual. If that individual has a family, then that family is affected by the business even if the other family members do not own it, manage it or even work in it. Would you not say that that also makes it a family business?

Does a business have to have a degree of maturity to qualify as a family business? When does it begin or cease to be a family business. Is a startup already a family business or does it have to be a business in the second or third generation? What if the family then exits from the management or even majority ownership – would it still be a family business (Steinway is one example that springs to mind)?

In our business we work to one of the wider definitions of the term “Family Business” that includes businesses owned or controlled by an individual with a family that is affected by the business.

I am curious to find out your views of what factors you consider important when considering whether a business qualifies as a family business. Please let me have your comments by email.

You may ask why we should care about the definition of a family business. The answer is fairly simple: we work with families in the property investment space and we view their wealth management activities as enterprises. Given that, family businesses are one of our core client groups and we feel it is important to understand them and their needs. A clear definition helps to gain a clear understanding of those needs.