Family business and financial performance Harvard Case Solution & Analysis

Family business and financial performance Case Solution

Introduction

Many people think that the term family business refers to a small or mid sized business having a set of small problems ranging from operations to strategic management, but they don’t know that these business include the huge companies such as Samsung, Google, Wal-Mart and Tata Group having almost total revenues of more than $ 1 billion and these business includes almost 30% of the business worldwide. In other words we can say that the family businesses have almost 30% of the market capitalization of the world economy however these business are not medium sized or small in scales, they are worldwide businesses and earning revenues in millions of dollars. Moreover, these businesses have almost 30% of the scope in allover worldwide business.
Furthermore, the family business can be defined as the business which is owned by two or more family members and the majority of shares held by them is referred to as the family business however, this type of business is the oldest form of business and the business originated from the family business and later on it changed its forms and structures as well.(Incorporation, 2012)
The structure of the family business is quite different from the public business as it is less formal than the public business and therefore, it has more issues as compared to the public business.Moreover, these issues include the hierarchy and other operational and managerial issues.(Incorporation, 2012)

These issues include the compensation issues, hierarchy issues, operational issues and strategic issues. The compensation issues arise because of the higher compensation which the owners are taking from the businesses since, there is no one to stop them and the executives or the family members who are running the business take higher compensations, which lead the business towards the decreased financial performance. Strategic issues include the issues which are pertaining to the decision making towards a new project or any other important consideration, since the owners are family members and have majority of shares with them they take decision on their own consent through this the financial performance and growth has been compromised.

Incorporation, 2012)

Conventional businesses sustain long term and their life is longer as compared to the public business,however it has been noted that these business slack in formal corporate culture because of the family ownership however, they enjoy a long term life and higher revenues and profits compared to the public businesses as indicated by some studies however some studies suggested the opposite of this.
To answer this question many researchers such as (Mignon, 2012)studied the performance of the family businesses in the United States and compare them with the public businesses. Her findings suggested that whenever the economy was in good conditions those businesses which have a major family ownership faced declined profits and revenues compared to more dispersed business and when the economy was facing recession or any bad conditions then those businesses which were owned by a family performed well in these conditions as compared to their peer dispersed businesses.(Incorporation, 2012)

Background of the study

Every firm wants to earn higher profit regardless if the business is family owned or is a public business; the ultimate objective of any business is to increase its profits and revenue by any means. For this purpose companies do a lot of planning to achieve this task, the techniques through which the companies can make higher profits include the proper financial management, marketing management and excellent strategic management.

Financial management involves proper management of funds and the decision that where to utilize the excess funds and where not, whether the company needs expansion or not and whether the company is relying on debt or equity. These are the basic objectives of financial management and the most important objective of financial management is to increase the shareholders’ value..............

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