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Family Run Enterprises : A Pillar To India's Growth
Kavi Arora
Kavi Arora
Managing Director & CEO, Religare Finvest Limited
Kavi manages the Small and Medium Enterprises (SMEs) focused on commercial lending business. With... more>>
India is a country that is known for its three Fs – Faith, Festivals and Family. Not surprisingly, all three contribute to the economy in a big way. Since independence and the growth of industries in modern India, business houses have been mainly family owned. Traditionally, businesses in India have been branded with a family name - the Tatas, Birlas, Modis, Ambanis to name a few among many family-owned enterprises.

FMBs bring to the table a lineage and a wealth of experience of the previous generations which a new start up, in our opinion, lacks. According to a study conducted by global financial services major Credit Suisse, two out of every three listed companies in India are family-controlled, making it the country with the highest presence of family businesses in Asia.

Having said this, we would also like to state that FMBs come with its fair share of challenges. Many issues that corporate houses face are exaggerated, if they are part of a family business, due to various underlying problems that arise in the family system such as, lack of common vision on which the entire family agrees and works upon, managing talent, marketing and financial management and many more. Notwithstanding these peculiar problems that FMBs face, the big question now is how to ensure they become more efficient contributors to the economy.

At Religare Finvest Ltd (RFL), we provide lending solutions to many SMEs which are either family run or supported by families which act as angel investors. Our experience suggests that while going through various stages of growth and development, many family run enterprises start to face challenges when the second and subsequent generations take over the reins.

In our view, the three key requirements for success in a family managed business are:

1) Having a clear vision statement and business plan

2) Efficient talent management

3) Judicious finance management.

Our experience of dealing with many family-based SMEs suggests that a common vision for the company would give the family a single focus and direction and reduce irregularities which result from lack of vision. Family grows for sure with generations and thus it is important to have a growing business to give away the right size of responsibilities to each family member. This is based on the law of distribution and is plain vanilla economics. If the vision and thus the business plan are in place, the growth can be achieved by various M&A activities or opening new lines of business (LOBs).

The second key requirement of efficient talent management is vital for the success of an FMB. Both the family members should hone and develop their own talents or employ the most suitable candidates for their businesses. The key factor which governs this challenge is that the family members always have a thought in mind that they can join the business anytime and there is always a place for them. There are examples of great businesses where family members are supposed to be of a certain qualification and experience before they are hired in the company. Appointing non family mentors can also help overcome this. A trustworthy and credible financial advisor can also act as a mentor for key decisions related to business.

Finally, finance management is the backbone of any business and we are not talking of accountancy but other complex money transactions as well. We don’t believe that excessive dependence on accounting consultants is the most viable option. Instead, we believe that FMBs should carefully select financial partners based on their funding or wealth management requirements.

Having seen from the experience of many FMBs, Religare Finvest Ltd. has evolved from providing plain lending solutions to offering a complete suite of financial support right from wealth management to forex and M&A advisory.

In our view, family run businesses can become the giants of tomorrow only if they choose the course of right corporate structuring and governance. We believe that an increase in the number of FMBs can help build a stronger nation along global lines. Religare Finvest Ltd is committed to support this growth.
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