Why do family businesses fail


Before big faceless corporations took over the world, family owned businesses were the heart and soul of the middle classes around the world. However, of late, it has been seen that family businesses too have become prone to failure. We investigate the main causes behind why family businesses fail.

1. The next generation doesn’t want it

It is one of the most prominent clichés in films and in television- a wide eyed small town teen dreams of leaving his/her hometown and of making it in the big city. The parents of this teen are often the proud owners of a family business that the teen considers to be too lowly for them! Sadly, that cliché is deeply rooted in reality and younger generations just don’t want to work for family businesses causing them to shut up shop.

2. Generation gap affects the functioning of the business

In cases where the younger generation does show a keen interest in entering the family business, it is seen that their respective styles of functioning cause friction between them. As a rule, younger generation entering a family business advocate making changes based on trends, their personal tastes and advancement in technology while older generations insist on doing things their way or the way that has worked for them for the past few decades. This results in instability for the business though it is also seen that either the obsolete ways of the older generation or the rash decisions made by the younger generation run the business into the ground.

3. Family members take too much money out of it

One of the biggest problems that family businesses face is that family members, even the ones not directly involved in its functioning, take money out of it (loans, borrowings, vacationing on the business’ expense, taking product off the shelf without paying). Since they feel a sense of ownership over the business, they are not asked to put this money back into the business again and thus the family business fails.