Reasons Why “Family Owned” is Important to Buyers
Eight Facts That Will Make You Think
When making a purchasing decision, price, lead time and capabilities are common decision factors when deciding who to partner with. But the words, “family owned business,” can have an impact on the success of the purchasing decision. While ‘family owned’ may not seem to make much of a difference to the buyer, in actuality, it can make a big difference.
Family owned businesses operate differently than nonfamily owned ones. The Harvard Business Review did a study and found seven ideologies that family owned companies generally practice:
- Diversification is amplified. Family businesses have learned to diversify their product line to protect themselves when economic downturns occur in any particular sector. It’s all about balance that allows the company to grow.
- Debt is low. Family owned companies associate debt with fragility and risk. If a downturn should occur, the company could lose control. To avoid this, family-run businesses prefer to minimize debt and use a pay-as-you-go approach.
- Acquisitions are on a small scale. Family businesses are not shy from making acquisitions, they just make fewer deals and when they do, it aligns with the core of their existing business or allows them to expand to a new territory. Organic growth is optimal so partnerships or joint ventures are much more appealing than acquisition.
- Talent retention is better. Employee turnover is lower in family businesses. The culture is stronger, creating an atmosphere of trust, promotion opportunities, and increased learning through training.
- They’re smart buyers. They don’t make frivolous purchases and are intelligent with the ones they make. Controlling unnecessary expenses helps the organization weather the downturns in economy, making them less likely to do layoffs.
- Capital expenditures are scrutinized. A vigorous study of all other company needs and expenditure affordability is reviewed before purchase. Only strong projects make the cut, saving the company from costly mistakes.
- Overseas $ales. Typically, 49% of a family businesses revenue is from international sales, vs. 45% for nonfamily companies. And they do it with less cash and plan for the long term.
It’s worth mentioning one more important advantage family owned businesses offer—flexibility.
- Nimble decisions. In a study, the Journal of Accounting and Economics (2005) found that 78% of CFOs would make decisions that destroy value in order to make their quarterly earnings targets. Family run companies make decisions based on what’s good for the organization long term. Plus, they don’t have the bureaucracy or red tape to make decisions required in other organizations. They are independent to move quickly when opportunities arise. This is a key advantage of family run businesses.
Add it all up and buyers can have a greater sense of confidence in the dependability of family owned companies, their flexibility to deliver services based on their customer’s needs and their ability to deliver a good product.
Hendrick wears the ‘Family Owned’ label with pride.