Family Management and Controls

By Jeff and Shawneen Kelly

4/22/2015

Family Business Information• 80% of the world’s businesses are family

owned

•More than 60% of publicly traded companies are family run.

•Many family run businesses were started after WWII

•Another increase in new family run businesses occurred after Sept. 11, 2011

Two Types of Management Styles

• Family run and managed businesses.

• This is useful because it helps to eliminate the agency problem.

• Some qualities that come with this style of management are

• Entrepreneurship

• Dedication

• Commitment

• Family reputation

Two Types of Management Styles cont…

• Family owned, but managed by an outside manager.

• This is useful when the owners do not have the skills needed to run the operations of the business.

• Some advantages are • Family values still influence the company

• Qualified personnel daily business and owners can spend more time preparing for the future

• Management has the ability to separate family matters from business matters

Common down falls

• Lack of internal control- this could be caused by lack of knowledge or a lack of resources.

• Poor management- Some time it is difficult to separate business and family objectives.

• Behavior between family members- Older members tend to follow the more traditional ways, and younger members tend to be more open to new approaches.

• Favoring family peace by overlooking fails/errors in the business.

• Lack of succession planning

The value of accounting/ how it works

Nepotism or separate classes of employs

Caspar, 2010

Quote from Thomas BowdenAssistant Director at the state office of the Georgia SBDC Network

•“The founder works and builds a business, the son takes it over and is poorly prepared to manage and make it grow but enjoys the wealth, and the grandson inherits a dead business and an empty bank account.”

Introducing managerial accounting

• Helps the owners to pass on implicit knowledge and formalize a strategic vision, which prevents them from being left out of the succession planning.

• Increase business’s value and ability to raise capital.

• Provides information need to make the best long-term decisions as possible.

Personal Experiences

• Many family businesses do not understand accounting and what it brings to the table

• Entrepreneurs in general focus on the business and push off administrative/reporting/tax obligations

• Many new family businesses have never used a budget, have no idea how to read/interpret financials

Sources

• Bowden. Thomas. “Management Problems in Family Owned Businesses.” Georgia SBOC Network. Web. 10 Mar 2015

• Caspar, C., Dias, A., Eistrodt, H. “The Five Attributes of Enduring Family Businesses.” McKinsley & Company. Jan 2010. Eb. 10 Mar 2015.