An assessment of the risk of family business failure

Stephen Ashton Hume (1999)

The rate of family business failure has been well documented and increasingly researched during the last 12 years. The majority of this research has focused on a specific cause of failure (i.e. succession), and has used a systems model as its theoretical base. This research project has used a unified, holistic, theoretical position, and considers the family business as a new entity created by the integration of its parts. Both s and failure are perceived as synergistic processes that preclude division into discreet factors or events. The purpose of this research was to develop and validate an instrument that would be useful in assessing the risk of business failure in family owned and operated businesses. The project involved the use of the Family Business Risk Assessment Profile (FB-RAP), a 37-question instrument which is divided into four areas or factors: Family System Characteristics; Succession Planning; Family/Business Balance; and Management Practices, Piloted in the first research phase, it used responses from 16 family business owners and 9 professional service providers. The project's second phase used responses from 15 family business owners and 16 professional service providers. They rated the same 37 questions regarding their relevance to the risk of business failure, and then rated the instrument's overall ability to capture the critical areas of risk. Results indicated that the instrument had strong content validity. Disagreement within and between groups was in areas related to the use of boards of directors, and the maintenance of a family/business balance. Professional service advisors consistently rated interpersonal areas such as family conflict and leadership issues as more critical; whereas, business owners rated communication, shared decision making and ownership as more critical. A rationale for additional research is presented and use of the FB-RAP is discussed. It is expected that future research would provide a profile useful for consideration of issues regarding the risk of business failure for existing family businesses.