1

Family Business
Quarter 2 Week 14

Expectations

In this module, you are expected to know the following concepts:

1. Explain the Steps and importance of running a family business

Pre-Test

Direction: Try to answer the following items below without going thru the module. You may write your
answers on a separate sheet of paper. Write AGREE if the statement is correct and DISAGREE if not

1. Family business is one of the oldest forms of business organization.

2. Family business contributes to nation’s economy.
3. Family business provides employment opportunities.
4. Family business provides generating wealth and security for family.
5. Owners/leaders of family business should live in humble life.
6. Successors of family business need to be expose to all facets of business at a very young age.
7. Family business do not need support from the government.
8. Family business brings new product and services.
9. Owners/leaders of family members can hire non-family members to occupy positions.
10. Family business is a legacy.

Looking Back To Your Lesson

Activity 7
On a sheet of paper, create one graphic organizer for each of the following concepts . Include the most
important concepts that you should remember for each. Use coloring materials for your label.

Functional Areas of Management

Brief Introduction

A family-owned business may be defined as any business in which two or more family
members are involved and the majority of ownership or control lies within a family. Family business is
one of the oldest forms of business organization. Family business are within the category of micro,
small and
medium enterprises (MSMEs). In the Philippines, 80% of businesses are family owned and controlled.
In Southeast Asia, 65% of total listed companies in the region are family businesses. With the
forthcoming economic cooperation zone of the ASEAN member states, the family businesses are in the
forefront to reap the rewards of this development.
 2

Lesson 7: Family Business

The family business is the most frequently encountered ownership business model in the world
and their impact on the global economy significant. They are capable of promoting entrepreneurism,
generating wealth and security for families and for providing employment opportunities for those in
the community.

Importance of Family Business in the Economy

1. Family businesses show higher profitability and generated significant revenue for the
government in terms of corporate and employees’ taxes.
2. Family businesses retain and hire employees even in times of economic recession.
3. Family businesses engage in corporate social responsibility activities.
4. Family businesses are innovative and employ strategy as a means of sustaining their
businesses from generation to generation.
5. Family businesses are less likely to raise debts and are widely deemed financially prudent
when professionalism is employed in the business

How to Run A Family Business

Family enterprise: To infinity and beyond

30 Jan 2019
https://www.grantthornton.com.ph/insights/articles-and-updates1/from-where-we-sit/family-enterprise-to-infinity-and-beyond/#:~:text=In%20the%20Philippines%2C%2080%20percent,number
%20of%20family%2Drun%20firms.

The inevitable departure by demise signals the changing of the guard in most family enterprises. At least two of
the large family enterprises in the Philippines are now on their sixth or later generation, yet majority of the top
family businesses are still being currently controlled by the second generation. This brings me to my earlier
point of powerful Philippine brands disappearing.

There is a famous Chinese saying that goes “Fu Pu Kuo San Tai,” which literally means “wealth does not pass
three generations.” Based on the Chinese saying, the first-generation founder works hard to build the business.
The second generation inherits it and grows the family fortune, while the third generation squanders it and
destroys the business. The Chinese saying actually makes a lot of sense, since the second generation business
owners are actually siblings who lived in the same house and know each other very well. The third generation,
on the other hand, is comprised of cousins who do not know each other as much.

A number of research studies support this Chinese saying. Recent worldwide research shows that the mean age
of family control in the family’s core company is 60.2 years. In 2010, Businessweek said that less than half (40
percent) of family businesses survive to the second generation and 13 percent continue to the third generation,
while only a shocking 3 percent survive to the fourth generation and beyond. The odds are not good.

With these numbers, can we therefore say that, eventually, family enterprises will be eradicated from the face of
the earth? I say if others are able to surpass the third-generation hurdle, the rest can also do the same. A close
examination of family enterprises that are able to survive beyond the third generation shows four best
practices:

First is the presence of a strong family constitution. A family constitution is a formal document that sets out the
rights, values, responsibilities, and rules applying to stakeholders in the family business, as well as provides
plans and structures to deal with situations that arise in the course of the family business operations . It will take
a lot of openness and humility for family members, especially for the founders, to spearhead the creation of a
family constitution. I have personally witnessed a founder who is already in his early 80’s, but still refuses to
come up with some sort of succession plan. The founder’s reluctance to plan for succession may stem from a
denial of mortality, or the fact that the business is dear to his heart. This reluctance may lead to the business
not surviving.
 3

Second, which is equally important as the family constitution, is for the founding family members to not only
transfer their financial wealth, but also the values surrounding their wealth to subsequent generations. I have
heard directly from a second-generation guy that his father told him to return his preowned high-end sports
car to the country of origin, when he decided to bring his car from overseas after completing his education
abroad. According to his father, since they are in the business of clients trusting them with their money, they
should live their lives in accordance with the trust accorded to them. Up until this time, this guy who already
took over some of the major businesses of the family, still lives an unassuming life. Other primary values that
need to be taught include encouraging the next generation to earn their own money, philanthropy, charitable
giving, and volunteering

Third, successful family business leaders focus on the next generation, not on the next quarter. Leaders ensure
that the next generation will have interest in the family business by exposing them to all facets of the business
at a very young age. Earlier generations ensure that the next generation is qualified to assume leadership roles
in the family business by providing them top-notch education. They put family members in critical roles not
only because of blood relation, but also because of qualifications.

Fourth, the family must be willing to bring in professionals to leadership roles when necessary and at the
appropriate time. We have heard of second-generation business owners retiring early to be able “to smell the
roses.” They are able to do so, because they have allowed competent professional non-family members to
occupy positions at the top early on.

We all want to leave a legacy behind or, to some extent, be immortal. Unfortunately, we cannot defy the laws of
nature. It might sound morbid, but we will all die. There are ways to be immortal: you write, invent something
useful for humanity, or build a business and ensure it will last forever. Forever does exist.

It can be hard enough to run a company by yourself, let alone running a business with people
who know every detail about you. Problems can easily arise in a family business when the professional
working relationship runs into the personal relationship, meaning that problematic family dynamics
can add further pressure to the running of a business.

Steps to Running a Successful Family Business

1. Set clear objectives for business growth: Think about what you want to achieve in the short and long
term. Using the SMART technique, set out targeted objectives.

2. Work on The Business, As Well As In The Business - Take a day out of the business to attend
workshops and seminars. This will enable you to educate yourself on developing business trends and
implement what you have learnt into your business, meaning you will always be up to date on the
most recent best practices for business growth.

3. Plan Early for Succession - Planning for succession years in advance will not only lead to improved
and cost effective job filling, it will also provide motivation and incentive for family members within the
business. Your plan must focus on achieving two equally important outcomes; 1) a financial
settlement for the departing leader or owner 2) A happy family with strong relationships. One is no
good without the other

4. Regularly Review Key Relationships - Not all longstanding commercial relationships will still be
appropriate. Periodically review key relationships with accountants, banks and other suppliers in
order keep them on their toes and avoid complacency.
 4

Check your Understanding

Coordinate with your subject teacher for instructions regarding:

 Integrative Performance Task
 Post Assessment

Answer Key Pre-Test:

1. A
2. A
3. A
4. A
5. D
6. A
7. D
8. A
9. A
10. A

Reference

Five Steps to Running a Successful Family Busines

Retrieved from: https://www.businessdoctors.co.uk/five-steps-to-running-a-successful-family-
busines/
Retrieved last: Jan 2021

Family Business and its Impact to the Economy

Retrieved from: https://www.hilarispublisher.com/open-access/family-businesses-and-its-impact-on-
the-economy-2167-0234-1000251.pdf
Retrieved last: Jan 2021

Mrs. Madilyn Navora

VM Gerona