A family business owner’s attitude to risk can be the reason behind why their business survives and another does not. There is often a common view that family businesses are inclined to be risk-averse and unwilling to innovate due to concerns about the possibility of a negative outcome and a reduction in the family’s wealth.
There are many factors that can impact upon the attitude of business owners to risk but it is important to consider if you are striking the right balance when identifying business opportunities and their associated risks, or whether you are inadvertently putting up barriers to growth.
Some common risks which may present barriers to growth for family businesses include:
1. A lack of knowledge or experience in a particular area
This may result in owners being unwilling to explore an opportunity to grow the business. For example:
- Expanding into new locations or entering new markets
- Development of new products
- Managing an increase in personnel
- A willingness to change systems and embrace new technology
- A willingness to increase borrowings to fund expansion
2. Risk to lifestyle
Many family business owners have a significant amount of personal wealth tied up in the business meaning that if the business were to fail, the family is likely to be exposed to a significant change in lifestyle. The desire to maintain a successful business and ensure that it passes onto the next generation can mean that the owners become risk-averse and conservative in their approach.
3. Getting the balance right between risk and opportunity
When deciding whether to take up an opportunity there is often a trade-off between the potential benefits and also the potential negative impacts. It is likely that risk-averse owners will weigh the negative impacts more highly than the potential benefits, resulting in opportunities to grow the business being missed.
Understanding the attitude to risk within the family is clearly important to the business. By understanding this and the degree to which the owners want to be involved in key decisions, will provide direction to those running the business regarding the opportunities that can be explored. If the family do have a low tolerance to risk, it is important to consider how this could affect the long term future of the business and personal wealth if opportunities for growth are missed.
Your local Family Business Connect advisers can provide you with specialist advice on understanding attitudes to risk and the barriers to growth your business may face. Please contact your local office if you require additional support.