CU-BBA-SEM-III-Basics of Family Managed Business

spends planning for the financial implications of this transformation, the more likely it is to avoid getting burdened during the transition. • The company's ownership changes hands during the transition phase, and the owner walks away from day-to-day operations. This final stage may be the most difficult, since many entrepreneurs find it difficult to let go of their family business. It helps if the business owner pursues other hobbies, establishes a sound financial foundation for retirement, and has confidence in the successor's talents. 4.5.3Property Management Estate planning takes care of the financial and tax aspects of passing on a family business to the next generation. Families must plan ahead of time to decrease their tax burden at the time of the owner's death so that the business and the family's assets are preserved. Unfortunately, today's tax laws make it difficult for families to continue operating their businesses. The worth of a business is taxed at a high rate when it is passed down to heirs. Due to its complexity, estate planning is typically handled by a group of specialists that includes a lawyer, accountant, financial planner, insurance agent, and maybe a family business consultant. When a firm becomes lucrative, an estate plan should be prepared, and it should be updated when the business or family situation evolves. The term \"estate freeze\" refers to a method of estate planning used by family company owners. The business owner can “freeze” the worth of the company at a given point in time by issuing preferred stock that does not appreciate in value and then distributing the common stock to his or her heirs. Because the majority of the company's shares are preferred and do not appreciate, estate taxes are reduced. When the preferred shares are passed down to the heirs, however, gift taxes must be paid. There are a variety of strategies available to help a business owner delay the transfer taxes that come with handing along a family enterprise. A simple will expresses the owner's wishes for how his or her possessions should be distributed after death. During a long illness, for example, a living trust appoints a trustee to oversee the owner's non-willed property. A marital deduction trust transfers property to the surviving spouse in the event of the owner's death, and no taxes are due until the spouse dies away. Estate taxes related with the transfer of a family business can also be paid in instalments, with no taxes due for the first five years and the remaining paid in ten annual instalments. Other approaches that allow business owners to exclude some or all of their assets from estate taxes include a unified credit/exemption trust, a dynamic trust, and an annual exclusion gift. It's a good idea to contact a lawyer because regulations change frequently. 4.5.4 Planning Assistance A competent family business consultant can be extremely beneficial when it comes to planning concerns. The consultant is a neutral third party with expertise working with a variety of families in a number of industries who can help to balance the family's emotional 51 CU IDOL SELF LEARNING MATERIAL (SLM)

dynamics. A family business consultant can bring a fresh perspective because most families believe theirs is the only business coping with these issues. A family business consultant can also help to develop a family council and advisory board, as well as serve as a facilitator for those two groups. Advisory boards can be formed to offer guidance to a company's president or board of directors. These boards are comprised of five to nine non-family members who meet on a regular basis to provide solid guidance and counsel. They, too, have the ability to detach emotions from the planning process and provide objective criticism. Members of the advisory board should have prior business experience and be able to assist the company in progressing to the next stage. The bulk of the time, the advisory board is compensated in some way. As the family business grows, the family business consultant may provide advice on a variety of options. Non-family professional management or an outside CEO are frequently called in to assist with the company's future expansion. Some families simply retain ownership of the business and allow it to run without the involvement of family members. 4.6CULTURAL AND ORGANIZATIONAL FAMILY ISSUES  Family businesses are known for their strong, distinct cultures, which are often created by the founder's vision, style, and convictions and rigorously maintained across generations. Employees in these cultures are more loyal and stable because they have a same aim. If it is effectively maintained, a strong culture may be a tremendous competitive advantage for a family organisation aiming to attract and keep the best people in order to achieve long-term goals. A strong culture can be both advantageous and disadvantageous. In an ever-changing economic climate where digital transformation and business model disruption are imminent, every family business must assess if its culture is fit for purpose.  Family businesses, on the whole, are great at identifying their objective. Purpose is becoming an increasingly essential factor in attracting and retaining employees; it highlights what the firm is doing to improve the lives of others, as well as how its products or services benefit the community or society as a whole. Purpose offers meaning to everyday labour; it defines how to transform effort into something that goes beyond profit and considers stakeholders' interests.  Values are the ties that bind a family, a business, and its employees. They usually represent the founder's personality and serve as a guide for how we do business.  • Unlike values, which are constant and serve as the cornerstone of a family business, culture is more changeable; it is a catalyst for performance, but it must evolve with time. The flexibility of the company culture to change is required by a moving strategy. Because every company must review and develop its strategy on a regular 52 CU IDOL SELF LEARNING MATERIAL (SLM)

basis (and with increased urgency in the current environment), it must also devote time and resources to determine if its culture is capable of carrying out the goal.  Despite the fact that most family businesses have 100 percent ownership, it is impossible to deny that they require additional funds for expansion and growth. This means that a family business may need to engage the support of outside investors from time to time to raise the capital required for expansion.  Outside investors may hold 51 percent of a corporation, leaving the remaining 49 percent to the family. A hostile takeover by outside investors is quite likely if this happens.  Even if the family business is thriving, it may not be able to continue if there are no legitimate successors to take over and continue the family's commercial heritage. To put it another way, family businesses can eventually end up in the hands of outside investors or key staff who are not blood relatives. When a family business has a high number of legitimate successors, this happens. There's a strong possibility that if the family business owners have five or more children, they'll disagree on business decisions. They all have an equal stake in the company's success. This means that some of the legal heirs will have to choose sides when it comes to economic considerations. • It has been alleged that children of family business owners are pressured into arranged marriages in order to bring the two families together and consolidate their wealth, which is damaging because it will cause a division in the family's administration. This arrangement can occasionally cause complications in the family business because the two offspring do not love one other. The phone relationship will, sooner or later, have an impact on business decisions, and the family business will be affected. Problems can arise if the original family business proprietors pass away. Because the rightful heir is under the age of majority, he or she is not entitled to control the business. This could be an opportunity for someone from the family lineage or an outside investor to profit unduly from the circumstance. 4.7 SUMMARY  The most volatile and disruptive period in the history of family companies is upon us. They must ensure that their culture, which is one of their competitive advantages, does not become a problem.  It is critical for a company’s culture to remain aligned with its strategy throughout a period of transformation. If you don’t do so, you’ll virtually surely underperform. Any family business may now define its existing culture, identify changes it would like to make, and track progress toward a redefined, goal culture using a simple but robust framework. 53 CU IDOL SELF LEARNING MATERIAL (SLM)

 Every industry, particularly business, necessitates change in order to survive and excel. Updating should be done when it comes to the family company sector.  The family business, like any other firm, becomes obsolete if it is not updated. In a family business, there are challenges such as cultural and organisational issues that must be controlled in order to prosper.  A family firm with a long history in India would have been established in a protective and conservative economic and political environment.  A systematic strategy to coping with the transition or transformation of an organization's goals, processes, or technologies is known as change management.  The goal of the Change Management process is to keep track of all changes throughout their lifecycle, allowing for positive changes to be implemented with minimal interruption.  The opening of industries, as well as supportive government policies and a bureaucratic environment, are all hugely beneficial factors. Most sectors are seeing improved governance, transparency, and smoother working mechanics, all of which contribute to a company’s success.  Entrepreneurship, growth, governance, and maturity are the four stages of a successful family business.Each stage has its own set of obstacles and distinguishing elements that will inevitably determine the business’ long-term success, and entrepreneurs should be aware of the macro and structural concerns at hand.  The ultimate barrier in the family company life cycle is succession, and this is when family relationships can become strained. It’s especially difficult during the shift from the first to the second generation, when sibling rivalries can trump common sense.  According to Credit Suisse, of the family businesses that hired outside help and wanted to “bind” non-family executives to the company, 75% gave greater levels of involvement and shared decision-making, with 39% indicating they treated these non- family executives equally to family members. 4.8KEYWORDS  Management - the process of dealing with or controlling things or people.  Chain Management- A systematic strategy to coping with the transition or transformation of an organization’s goals, processes, or technologies is known as change management. 54 CU IDOL SELF LEARNING MATERIAL (SLM)

 Cultural issues - It refers to computer-related issues that have an impact on society’s nature and culture. The digital divide is one of these challenges. The nature of work is shifting.  Evolution- the process by which something evolves over time.  Entrepreneurship - the activity of setting up a business or businesses, taking on financial risks in the hope of profit.  SBA - Small Business administration  EDP - Entrepreneurship Development Programmes 4.9LEARNING ACTIVITY 1. Learners are given the roleplay to become the owner of a family business and asked to present their views as a leader. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are motivated to participate in various trainings on leadership qualities, and leadership skills. ___________________________________________________________________________ ___________________________________________________________________________ ______ 4.10UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do you mean by the term ‘the evolution’? 2. Define – Change management. 3. Write a short note on business planning. 4. Explain – Estate planning. 5. Write a short note on succession planning. Long Questions 1. What is change management in family business? 55 CU IDOL SELF LEARNING MATERIAL (SLM)

2. State the difficulties in leading the family business? 3. What are the issues in involved in planning of family business? 4. Explain – The Evolution of Family Business. 5. Explain- cultural and organizational family issues. B. Multiple Choice Questions 1. SBA stands for: a. Small Business accountants b. Small Business administration c. Small Business adequacy d. Small Business advisors 2. Family business always interested to handover the change of his business to: a. Indian Administration Officers b. Professional Managers c. Next generation d. None of these 3. EDP stands for a. Entrepreneurship Development Programmes b. Entertainment Development Programmes c. Education Development Programmes d. None of these 4. EDP (Entrepreneurship Development Programmes) is required to help: a. Existing entrepreneurs b. First generation entrepreneurs c. Future generations entrepreneurs d. None of these 56 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Which of the following Organisational form is most prevalent in Family managed business? a. Sole proprietorship b. Partnership c. Company d. HUF Answers 1-b, 2-c, 3-a-4-b,5-d 4.11REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: GlobalBusiness Press 57 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 5ROLE OF FAMILY STRUCTURE 5.0 Learning Objectives 5.1 Introduction 5.2 Role of Family Members in Family Business 5.3 Promoting Trust among Family members 5.4 Role of Non-family Members in Family Business 5.5 Family Members Vs Non-Family Members 5.6 The Critical Role of Non-family Managers 5.7 Summary 5.8 Key words 5.9 Learning Activity 5.10 Unit End Questions 5.11 References 5.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Know the role of family members in family business  Explain the role of non-family members in family business  Understand the difference between family members and non-family members  Recognize the critical role of non-family managers in family business 5.1 INTRODUCTION A family-owned business is one in which two or more family members are involved and the family owns or controls the majority of the company. The earliest sort of company structure is probably a family-owned business. Farms were an early form of family business in which personal and professional life were intertwined. Previously, it was usual for a shopkeeper or doctor to live in the same building as his or her place of business, and family members would frequently assist with the business as needed. The roles and responsibilities of family business boards of directors have been a hot topic of discussion. In order to function properly, boards must understand the proper duties and responsibilities of the family ownership group. They may then advise the owners on how to get the most out of their involvement and 58 CU IDOL SELF LEARNING MATERIAL (SLM)

understand the dynamics of ownership and management. When the owners of a family business share the values and emotions of a long history, governance can be conceived of as a system of interactions between management, owners, and the board of directors. Each group has its own set of jobs and responsibilities. 5.2ROLE OF FAMILY MEMBERS In family businesses, there are many different combinations of family members in various business roles, such as spouses and wives, parents and children, extended families, and several generations performing roles such as stockholders, board members, working partners, consultants, and employees. The owners of a company can provide great value to its performance and continuity if they are united, dedicated, and responsible. When the ownership group speaks with one voice, management can focus on the business rather than worrying about shareholder disagreements. People with a long-term vision have more strategic stability and are more willing to take risks. Responsible ownership gives the board of directors, management, and other shareholders peace of mind. Responsibilities include respecting the boundaries of ownership roles, knowing the business, and providing governance process leadership. Owners who have this level of commitment, accountability, and unity are more likely to agree on the goal of their ownership, the policies that affect ownership, and the processes that will strengthen their resolve. a) Perception The company's vision is formed by the owners' ideals. The vision of the owners has two dimensions: one for the nature of the firm and the other for the ownership structure. The founding family must specify who is permitted to own and vote on the shares in terms of ownership structure. Some families prefer to be part of a public company, while others prefer to work with private partners. Some families use trusts or general partners to pool their voting power. Others want to democratise voting rights and promptly distribute shares among family members. For example, ownership must define if new spouses are permitted to possess shares in the company and to whom shareholders may sell their shares if they no longer wish to be shareholders. Larger family businesses may need to decide whether they want their company to be a publicly traded, multi-business holding company that grows through joint ventures with global partners under the majority management of a family voting trust to ensure family leadership for future generations, or if they want their company to be a privately held, multi- business holding company that grows through joint ventures with worldwide partners under the majority management of a family voting trust. Regardless of the size of the company, the board must encourage and advise the family to communicate its ownership vision. b) Objectives Owners must also make an attempt to present a set of corporate goals that meet their needs and gain their support while remaining achievable for management. Growth, Risk, 59 CU IDOL SELF LEARNING MATERIAL (SLM)

Profitability, and Liquidity appear to be the four goal areas that appear to be under the jurisdiction of ownership. Of course, these four goals are interwoven. There is less of one thing when there is more of the other. The basic trade-offs made between these goals reflect the business's owners' values and vision. One family may believe that paying large dividends and providing redemption possibilities is the most effective strategy to ensure long-term ownership commitment. Another family may decide that diversifying their portfolio of companies with interesting employment prospects for family members is a better option. The board of directors can help the family realise the goal trade-offs that come with ownership. The board must also provide candid feedback on whether the family's goals are feasible and appropriate for the company's long-term success. c) Regulations Governance is effective when family ownership and the board of directors agree on values, vision, and goals. The owners' principles, which include stewardship, transparency, paternalism, innovation, trust, and democracy, impact the business culture. If the ownership family's beliefs are unclear, the company culture will be thin and the family's commitment to ownership would be weakened. The effect of a distinct and distinctive business culture that represents the owners' underlying principles is mostly ownership pride. In addition to its beliefs, vision, and goals, the owning family must address the difficulties that characterise its connection with the company. The following is a list of policy areas that ownership is in charge of: • Interactions with management and directors • Information • Confidentiality • Conflicts of interest (suppliers, customers, investments, new initiatives, rivalry) • Expenses associated with shareholder relations • Charitable giving levels and emphasis • Estate planning • Redemptions • Dividends • Governance duties are passed down throughout the family (trustees, general partners, directors, chairs, CEO) The board can play a number of crucial roles as the family develops these ideas. The board can give an objective assessment of whether the proposed policies are consistent with the family's stated values, vision, and goals. The family's decision-making processes might also be defined with the help of the board. Creating family consensus on ownership goals and rules is a difficult undertaking that is rarely done once and for all. As a result, learning and decision-making procedures are crucial to forming a cohesive, dedicated, and accountable ownership group. Owners of the next generation must be well-informed and knowledgeable; else, loyalty and solidarity will be shattered. As a result, one of the responsibilities of ownership is to educate current and 60 CU IDOL SELF LEARNING MATERIAL (SLM)

potential owners. Management and the board of directors can and should help, but the owners are ultimately responsible for their knowledge and willingness to work hard. Understanding the business culture and how they can contribute to it, as well as the business strategy and how to track it, and governance, are all things that owners should get familiar with. Because the owners have ultimate accountability for the board of directors, they must exercise intellectual leadership to ensure its success. Owners who know what they're doing are critical to the success of a board. Owners must also have a competent decision-making process. If the procedure is judged to be equitable or fair, other points of view may be accepted. Unity and commitment are threatened if there is a lack of information, awareness, or participation in the process. Finally, the decision-making process must evolve as the next generation of family owners matures in age and conviction. If succession processes and expectations for power and control are unclear or inadequate, ownership disagreements or unhappiness are unavoidable. All of these issues, including ownership, voting rights, directorship, and leadership succession, must be addressed. 5.3PROMOTING TRUST AMONG FAMILY MEMBERS A family's passion, devotion, and stewardship in their business can be greater than those who work for impersonal stockholders. But, if we had to boil it down to a single concept, a single word, the one ingredient that supports all of the competitive advantages and distinctiveness of family businesses, that word would have to be \"trust.\" Trust underpins long-term perspectives, the \"family effect,\" loyalty, dedication, stewardship, and much more. Trust, according to behavioural scientists who have studied the subject, can bring a considerable boost to family companies. Max Weber, a renowned German sociologist and economist, claimed that trade in products is only possible if “wide-ranging personal confidence and trust” exists. Trust is \"essential for robust social connections,\" according to prominent modern sociologist Peter Blau. According to organisational development specialists Golembiewski and McConkie, “no single element has such a profound impact on interpersonal and collective behaviour as trust.” There is a level of trust in every relationship, or a lack thereof. Its worth in the workplace is self-evident–among executive teams, managers and subordinates, suppliers and customers. Relationships that are strengthened by both business and family ties are often distinguished by a higher level of trust than those that are formed just between business associates. Furthermore, a family's values can contribute to the development of trust as a more substantial and long-term part of a company's culture. Unfortunately, too many family business leaders take trust for granted. When worries arise, plans go awry, and performance deteriorates, they are happy to respond \"trust me.\" “I'll put things right.” Instead of creating trust, family business executives rely on it in these 61 CU IDOL SELF LEARNING MATERIAL (SLM)

situations. There are moments when you don't have any other choices. Executives in family businesses, on the other hand, would be sensible to treat trust like they would capital. Trust can be built up or depleted, much like capital. The quantity of trust available is proportionate to risk, just like money. When trust is high, certain behaviours are permissible in high-trust contexts but not in low-trust situations. Obviously, not every family business is built on trust. Family businesses that make for compelling reading in the popular press are typically ones who have lost their trust. Indeed, the competitive advantages seen in family businesses are limited to those who consciously build and foster trust among family business partners. There are five components to trust: • Honesty and truthfulness — having a reputation for being honest and truthful. • Consistency – operating with reliability, predictability, and excellent judgement • Loyalty – willingness to protect, support, and encourage • Openness – freely sharing ideas and information, openly providing others access to one's thoughts When actions and behaviour are consistent with these components, trust is increased. Trust is eroded when such components are at odds. In business environments that highlight these ideals, they are reinforced. Businesses that ignore them lose the competitive benefits that come with having their customers trust them. A family business leader who refuses to assume responsibility, shares information with others, and sees loyalty as others' obedience is unlikely to leave a lasting legacy for future generations. The essential benefit of trust will have been shattered, along with the foundation for successful business and family relationships. The new basis of the family business is built on trust. A new generation with rejuvenated values and relationships can build on the foundations created by earlier generations to achieve even greater achievement. 5.4ROLE OF NON - FAMILY MEMBERS IN FAMILY BUSINESS Family companies are universally acknowledged to play an important role in our economy. Family businesses account for roughly eight out of ten firms in Belgium that employ individuals. As a result, they are a large employer, employing over 1.7 million people, or 45 percent of the total workforce. Many of these employees are obviously family members. Given the strong tendency for family businesses to prioritise obtaining a job within the family, this is understandable. Ordinary family enterprises, on the other hand, rely heavily on non-family employees and management because human capital is quickly depleted. For starters, family businesses appear to be particularly enticing employers for many non- family members due to their informal and less bureaucratic structure. Its culture is also typically characterised by a nice working environment in which employees are well-cared 62 CU IDOL SELF LEARNING MATERIAL (SLM)

for. Employees are valued in family enterprises, and even non-family workers are considered as family. These are also businesses that offer employees a stable working environment free of layoffs and reorganisation. These characteristics may provide them an advantage in terms of attracting and motivating people who value a meaningful, safe, and stable work environment. Others, owing to the complexity that can arise as a result of the firm's and family's links, may be less interested in the family business. This confluence of circumstances can lead to muddled communication and decisions, as well as internal strife. This might make family businesses difficult to understand, deterring potential employees. The research also suggests that family businesses sometimes put too little focus on employee training and development. Furthermore, salaries are frequently lower than in other organisations, however this appears to be the case mostly in smaller family businesses. In terms of total employee remuneration, professionally run medium-sized and larger family businesses appear to be no different than other businesses. At the management level, non-family CEOs and managers in family businesses appear to be paid more than family managers and firm leaders. Non-family CEOs' salary would also be equivalent to that of non-family firm CEOs. 5.5 FAMILY MEMBERS VERSUS NON-FAMILY MEMBERS Most family companies will experience a variety of challenges at some point in their lives. Non-family employees might be difficult to recruit and retain because they may struggle to deal with work-related family problems, limited prospects for growth, and special treatment given to family members. Furthermore, some family members may be resentful of outsiders being brought into the company and may intentionally make things difficult for non-family personnel. Outsiders, on the other hand, can act as a stabilising element in a family firm by providing a balanced and objective viewpoint on business concerns. Exit interviews with departing non-family employees can help family business owners figure out what's causing the turnover and how to prevent it. a) Workplace Qualifications Many family businesses struggle to establish criteria and qualifications for family members who want to join the company. In order to avoid potential problems, some companies strive to limit the participation of people with particular family links, such as in-laws. Family businesses are frequently under pressure to hire family or close friends who may lack the necessary talent or expertise to contribute to the company. Even if they cost the organisation money or undermine the motivation of other employees by displaying a negative attitude, such persons might be tough to terminate once employed. A stringent strategy of only employing persons with valid qualifications to fill existing positions can assist a corporation avoid such issues, but only if the policy is followed consistently. Analysts include offering particular training to develop a valuable talent, engaging the support of a non-family 63 CU IDOL SELF LEARNING MATERIAL (SLM)

employee in teaching and supervising, and assigning unique projects that minimise unpleasant contact with other employees if a company is obliged to hire a less-than-desirable employee. b) Remuneration and Salaries Another issue that family businesses typically face is paying compensation to and splitting revenues among family members who participate in the business. A small business must be able to use a significant portion of profits to expand in order to grow. However, certain family members, particularly those who own the company but are not employees, may not see the worth of expenses that limit the quantity of current dividends they get. Many family businesses face conflict as a result of this, and it makes it even more difficult to make the essential investments in the business to ensure its long-term survival. Business executives should match compensation to industry criteria for each job description to guarantee that family and non-family personnel are paid appropriately. Fringe benefits or equity distributions can be utilised to provide additional remuneration to specific employees for their contributions to the company. d) Succession to the throne Another crucial issue in family businesses is succession planning, which involves choosing who will take over leadership and/or ownership of the company when the present generation retires or passes away. A well-defined plan is essential for preventing arguments about who will take over a corporation. A family retreat, or a meeting on neutral ground free of distractions or interruptions, can be a great place to start talking about family goals and future plans, the timing of planned transitions, and the current generation's preparation for stepping down and the next generation's succession. When succession is put off, older relatives who are still working in the family business may acquire a bias for keeping things the same. These individuals may be resistant to change and unwilling to take chances, despite the fact that such attitudes can stifle business progress. Business leaders should take steps to gradually remove these relatives from the company's day-to-day operations, such as encouraging them to participate in outside activities, arranging for them to sell some of their stock or convert it to preferred shares, or restructuring the company to dilute their influence. There are several steps that family company owners can take to prevent falling into these classic mistakes. Many potential problems can be avoided by having a clear declaration of goals, an organised plan to achieve the goals, a defined hierarchy for decision-making, an established succession plan, and strong lines of communication. All family members involved in the business should be aware that their rights and responsibilities at home and at work are distinct. At home, family relationships and aspirations take primacy, whereas at work, the company's performance takes precedence. When emotion intrudes on professional relationships, as happens in every business from time to time, and unavoidable disagreements between family members arise, the manager must 64 CU IDOL SELF LEARNING MATERIAL (SLM)

intervene and make the objective decisions required to safeguard the firm's interests. Rather than taking sides in a conflict, the manager should make it obvious to all employees that personal differences will not be permitted to distract them from their work. Employees should be discouraged from jockeying for position or playing politics as a result of this approach. Regular meetings with family members and the documentation of all business agreements and policy guidelines may also be beneficial to the business leader. 5.6THE CRITICAL ROLE OF NON-FAMILY MANAGERS  Non-family management and owners have a delicate relationship. Professional managers must continue to do an excellent job and have a positive working connection with members of the family who own the business. Non-family executives are typically pleased with their involvement in the family business; however they do have certain concerns and reservations.  Family members have an easier time climbing to top positions in a typical family corporation than non-family management. As a result, a non-family manager with ties to the founding generation will be in charge of supervising the next generation during their early days on the job, and the second generation may eventually work for the first.  Top executives who realise they have no chance of ascending to the company's top positions find it difficult to remain with the company's owner-managers. They are encouraged to leave for other companies that will recognise their experience and expertise and offer them possibilities to progress in their professions.  Bringing non-family managers on board is also advantageous to family firms, as it boosts the company's performance in general. The position of financial director is typically the first non-family person to hold. This promotes the professionalisation of the family business, with financial management playing a vital role. According to the report, in order to improve performance, family businesses should strive for a good balance of family and non-family managers. In terms of attracting a non-family CEO, the study discovered that larger family businesses, or those with a high number of shareholders, benefit from having a non-family CEO. However, it appears that its success is dependent on more than just the company's profitability; family members only believe that collaboration with external CEOs is effective when both sides have a strong emotional bond in addition to financial performance. In short, family members have a lot of advantages as employers that set them apart from other groups. They can maximise the intrinsic features and culture of a family business on the labour market if they pay adequate attention to staff development and training, and limit uncertain communication and decision-making by focusing on the family firm's further professionalisation. 65 CU IDOL SELF LEARNING MATERIAL (SLM)

 To develop a favourable environment for attracting and maintaining top-level managerial talent, the following measures will be required:  Talk to them about the company's career opportunities and let them know if top roles aren't accessible. This is crucial, and the new management will be grateful.  In relation to the competitors, offer competitive compensation and benefits. Equity ownership will be a tremendous inducement in many circumstances.  Form decision-making teams with other owner-managers to include non-family executives in top-level decision-making.  Set goals and use performance measures to boost motivation. Goal accomplishment is a great motivator.  Stress the importance of non-family executives attending company meetings. Making them feel like they contributed to the success gives them a sense of accomplishment.  Treat your relatives as though they were co-workers. It aids in the development of a healthy atmosphere.  Enlist the help of non-family executives to assist with succession planning. They will feel more at ease if you invite them to join.  Some top non-family executives can act as \"bridge\" leaders, helping the transition from one generation to the next go smoothly.  Evaluate the motivation of non-family managers on a regular basis, as well as the working relationship between family members and non-family managers. 5.7 SUMMARY  A family-owned business is one in which two or more family members are involved and the family owns or controls the majority of the company.  Family-owned businesses are possibly the most ancient sort of business structure. Farms were an early type of family business in which what we now consider private and professional life were intertwined.  Traditionally, a shopkeeper or doctor might live in the same building where he or she worked, and family members would frequently assist with the business as needed. The roles and responsibilities of boards of directors in family enterprises have been hotly debated.  In order to function effectively, boards must understand the duties and responsibilities of the family ownership group. 66 CU IDOL SELF LEARNING MATERIAL (SLM)

 They can then advise the owners on how to maximize their participation and understand the ownership and management dynamics  . In a family business, governance can be viewed of as a system of interactions between management, owners, and the board of directors, where the owners share the values and emotions of a long history. Each group has its own set of duties and functions.  A family-owned firm is one in which two or more family members are involved and where the majority of ownership or control is held by the family  Family-owned enterprises are possibly the oldest type of business structure. Farms were an early sort of family enterprise in which what we now consider private and professional lives were linked  The functions and responsibilities of boards of directors in family businesses have been the subject of much debate  Various combinations of family members in various business roles, including husbands and wives, parents and children, extended families, and multiple generations filling the roles of stockholders, board members, working partners, consultants, and employees, can be found in family enterprises.  The vision for the company is shaped by the owners' ideals. The owners' vision has two dimensions: one for the nature of the business and the other for the structure of its ownership. In terms of ownership structure, the founding family must spell out who is allowed to own and vote on the shares  Owners must also make an effort to present a set of corporate goals that satisfy their interests and ensure their support while remaining realistic for management to achieve  Ownership pride is largely the result of a distinct and distinctive business culture that reflects the owners’ core values.The owning family must address the issues that characterise its relationship with the firm in addition to its values, vision, and goals 5.8KEYWORDS  Trust - a firm belief in someone or something's dependability, veracity, or ability  Family members - Family Members means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse.  Non-family members - a household whose members are not related  Managers - a person in charge of controlling or administering an organisation or a group of employees 67 CU IDOL SELF LEARNING MATERIAL (SLM)

 Critical roles - Critical roles are the different types of roles currently crucial to the achievement of organisational outcomes. 5.9LEARNING ACTIVITY 1. Learners are asked to perform as a team, who owns a family business. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are motivated to take the roles of both family members and non-family members in a family business. ___________________________________________________________________________ ___________________________________________________________________________ ______ 5.10UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write a short note on – Managers in family business. 2. What are the basic educational qualifications to run a family business? 3. How can the salaries and compensations be managed in family business? 4. How do you create trust in family business? 5. How important is the succession in family business? Long Questions 1. What is the role of family members in family business? 2. Discuss difference between the roles of family and non-family members. 3. What is the role of non-family members in family business? 4. Explain – The critical role of non-family managers. 5. How to build trust among family members in family business? B. Multiple Choice Questions 1. Which of the following shows the process of creating something new? 68 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Business model b. Modeling c. Creative flexibility d. Innovation 2. A person who managed large project was termed as the entrepreneur in the _________. a. Earliest period b. Middle Ages c. 17th century d. 19th and 20th century 3. The level at which an individual is viewed by society is called: a. financial status b. Qualification c. social status d. Achievement 4. _____________ is a person in charge of controlling or administering an organisation or a group of employees a. worker b. shareholder c. member d. manager 5. ____________ is a major advantage in case of Family managed business a. Low labour turnover and high loyalty b. No difference between family and business c. More time devoted to work d. Cooperative business participation by family members 69 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1-d, 2-d, 3-c, 4-d, 5-a 5.11REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: GlobalBusiness Press 70 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 6FAMILY BUSINESS GOVERNANCE STRUCTURE 6.0 Learning Objectives 6.1 Introduction 6.2 Family Business governance 6.2.1 The Role of Family Governance 6.2.2 The stages of Family Governance 6.3 The Family Council – Administration and Management 6.4 The family Assembly 6.5 Board meetings and Communications 6.6 Summary 6.7 Keywords 6.8 Learning Activity 6.9 Unit End Questions 6.10 References 6.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Understand the family business governance  Explain the stages of family governance  Know the administration and management in family business  Explain the role of board meetings and communications in family business 6.1 INTRODUCTION The phrase \"family governance\" refers to the structures and processes used by families to organise themselves and guide their commercial relationships. When well-designed (and effectively implemented), family governance can help set boundaries, provide clarity, and result in more harmony among family members, a more focused business, and smoother generational transfers. Family governance, on the other hand, must reflect the family's particular culture, dynamics, and aspirations in order to be effective. The majority of family business governance research focuses on corporate governance, with only a few studies looking at family governance. The relationship between the firm's owning family and the 71 CU IDOL SELF LEARNING MATERIAL (SLM)

business itself, as well as internal concerns inside the business's owning family, are addressed by family governance. The evidence supporting family governance is examined in this section, as well as many family governance systems. There are various guidance texts that offer recommendations and advice on family governance, such as how to form a family council or draught a family constitution or charter. 6.2FAMILY BUSINESS GOVERNANCE The Three-Circle Model of the Family Business System was created at Harvard Business School in 1982 and is still the primary organizing framework for understanding family business systems today. In a family business, the graphic depicts three interrelated and overlapping systems: family, ownership, and business. To function effectively over time, each system in a family business must understand how to communicate with and support the other systems. Furthermore, people within each system should understand which decisions are theirs to make. This connection, assistance, and decision-making is referred to as governance. Figure 6.1 Three Circle Model of the Family business system There are three parts to family governance: • Regular (typically annual) family meetings; this is an activity that all business families can benefit from. • Family council meetings for families who benefit from having a representative group of their members organise, create policies, and improve business-family communication and bonding. 72 CU IDOL SELF LEARNING MATERIAL (SLM)

• A family constitution—the family's policies, guiding vision, and values that regulate how members interact with the business. This written contract might be short or long, detailed or straightforward, but it is beneficial to every business family. A corporation with a more extensive family governance structure might have a separate meeting for family-owner-managers or a separate council for family shareholders, as well as periodic meetings with shareholders, the board, and management. I prefer the simplest structure that does the job, and most firm families only require the three components described above. When properly organised and run, a family assembly and family council can help to: Develop clarity on duties, rights, and obligations for family members. • Inspire family members, family employees, and family business owners to be accountable to the firm and their loved ones. • Limit the participation of appropriate family and owner members in business discussions. • The yearly family reunion lasts one to two days and includes all adult members of the family. Families must decide when their children are old enough to attend these meetings. Children should start attending meetings when they are able to feed themselves, according to one family; most families start bringing the younger generation into meetings around the age of 16. Families may want to schedule some group events for their young children so that they can learn about the business and establish relationships with their siblings and relatives. Family assembly activities include learning about the business through presentations by family and non-family managers, discussing the firm's direction, being educated about what the company does, and gaining vital skills such as reading financial accounts. It's also a great location to keep up with family news, such as important events and successes, as well as changes in ownership. 6.2.1 The Family's Role in Governance Any family governance framework enhances the family by providing a platform for: • Establishing the family's vision and philosophy of its connection with the business, as well as the business's support of the family. • Identify and uphold the values that will lead the family and its related companies. • Teach the family about ownership rights and responsibilities, as well as family history and values, and make future plans. • Establish and maintain a strong succession plan for ownership and key family leadership positions. • It is appropriate to commemorate individual and family anniversaries. • Keep in touch with the owners and keep them informed. 73 CU IDOL SELF LEARNING MATERIAL (SLM)

• Recognize and resolve family conflicts in order to promote family harmony. The complexity and alignment of the corporate, ownership, and family systems impact how a family tackles these responsibilities. The following factors have a role in determining the “right” family governance structure: • How many people are there in total? • How many generations does your family have? How many individuals are employed by the firm? • Are the owners in positions of power? How many generations are currently in positions of power? Is there anyone on the payroll who isn't a family member? • What is the company's size? What services are available to family members? • Do the family members know each other? Are they on the same page when it comes to the company? Is there room for disagreement? • Who will be involved in making family decisions? What decision-making approach will be used? 6.2.2 The Different Stages of Family Administration Families like the Walcotts typically realise that as the size and content of the family changes, so does the way they make decisions together. In the early years of a business and a family, communication and decision-making are more casual, usually taking place around the kitchen table. As the founder's children leave the house and begin their lives as young adults, it becomes increasingly important to be deliberate about communication and decision-making procedures. As the family and business expand, more formal governance becomes necessary. However, just because your family is only two generations old does not mean you shouldn't think about how to set up effective family government. The good news is that if your family's business operations are straightforward, putting in place family governance can be straightforward as well. Many individuals feel that well-planned family gatherings are the foundation of family government. Many family governance systems are depicted in the Diagram of the Stages of Family Governance (Figure 2), which is based on the complexity and interaction of the family and the firm. 74 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 6.2 Stages of Family Governance The Walcotts were located in the bottom row of Figure 2 between the second and third boxes from the left. When George’s son-in-law, Fred, began questioning the value of his wife's nonvoting shares and seemed to be second-guessing the fish farm's strategic strategy, George and Bill began conducting family meetings. After three years of post-birthday family gatherings, they decided to hold adult-only meetings twice a year to improve alignment between the family and the business. There were many significant subjects to discuss, with five third-generation members interested in summer jobs and George considering retirement. George and his children decided to invite spouses to the meetings so that they could hear what was going on first hand and actively participate. 6.3THE FAMILY COUNCIL - ADMINISTRATION AND MANAGEMENT Most family businesses, especially in their early years, adopt the characteristics of its founder or founding family, working under a \"benevolent dictatorship\" system of centralised 75 CU IDOL SELF LEARNING MATERIAL (SLM)

decision-making. The need for successful models of collaboration and collaborative decision- making among family members becomes increasingly important as the company expands, the family grows, and the founder begins to transfer ownership and control to future generations. According to the PwC Family Business Survey, 71% of family firms lack procedures for addressing family member issues. A systematic set of processes becomes more important as the number of stakeholders involved grows (whether they are family owners, family owner- employees, non-family owners, or non-family executive management). Furthermore, if the owners become increasingly removed from the day-to-day operations of the company, or if the company expands beyond the scope of the family's knowledge, procedures must be put in place to engage professional management teams and a board of advisors to help the company grow and prosper. Family governance is a framework that allows family members to make decisions together based on shared values, a common aim or purpose, and a shared vision for the future of the family. It can help families recognise and manage their resources, define responsibilities, create individual boundaries, and allow members to manage competing and related interests. It provides a forum for families to address issues that would otherwise result in the dissolution or sale of the family business, the destruction of family wealth, and the disintegration of family unity if it is done correctly. The following challenges are frequently addressed by a family governance framework: • Responsibilities, rights, and obligations of family members • A framework that dictates how family members should be included in commercial talks. • The formation of a \"family council\" to oversee strategic business choices and increase family-to-family communication. • Policies for family employment, development, and compensation are in the works. • The formalisation of commercial ties between family members • A method for selling ownership interests • A plan for leadership succession • Dividend and distribution policies All of the following responsibilities can be handled by the family council: • Arrange family assembly gatherings, which are usually coordinated by the CEO. • Discusses current business, ownership, and family issues and direction with the family and keeps them informed. • Assist the family in making decisions and communicating its goals in a unified voice. • Communicate with the board of directors about important business policies and strategies, and keep the board up to date on family viewpoints on the firm. 76 CU IDOL SELF LEARNING MATERIAL (SLM)

• Work with the board to develop policies and procedures to govern family engagement in the firm. • Prevent family influence in the business while ensuring that the family's basic objectives are realised. • Develop a foundation of family shareholders who are loyal, well-informed, and willing to contribute. • Seek for family members who have a knack for business. • Hold educational events for family members or otherwise encourage them to learn about the business. • Assist in the establishment of healthy, joyful family relationships by planning family social occasions and rituals. • Dividend and distribution policies Any family council that achieves these goals strengthens a family's connection to its business and discipline, as well as serving as a valuable resource for management and the board of directors. The family council can be created in a variety of ways, the most frequent being one member elected from each family branch. The family council should be made up of people who look like family members, with representation from all generations, both genders, in-laws, active and passive proprietors, hometown and far-flung relatives. The family council normally meets for one or two days a few times a year. The majority of families reimburse family council members for their expenses but do not pay them for their time and effort. Others argue that at the very least a modest remuneration is both justified and deserved. Families in business must foster members' feelings of trust and pride in the family and business, as well as build a sense of teamwork, in order to sustain a loyal and disciplined relationship with the firm. In the family council and family assembly, it is prudent to support consensus decisions on family goals and policies, openness to other points of view, and significant transparency in company operations, decision-making, and ownership holdings. Hire a facilitator to help organise the meetings if the family is unwilling to participate in the essential dialogues in the family council or assembly owing to fears about potential family conflict, a lack of understanding about what these groups should do, or simply shyness in these sessions. Good structures that do not address the pertinent concerns are a costly waste of time.. 6.4THE FAMILY ASSEMBLY As the founder approaches retirement and his grandkids grow up and establish their own families, the family council may find it beneficial to hold larger family gatherings. These meetings give the family council a chance to update the rest of the family on the state of the 77 CU IDOL SELF LEARNING MATERIAL (SLM)

company, its prospects, and any other things of material importance that it deems important. It also acts as a platform for educating and reinforcing the family's core beliefs and culture. Spouses and children are encouraged to attend these gatherings in order to build and develop ties with those with whom they may only interact on an infrequent basis in the future but with whom they may need to work. Presentations on the company by family and non-family managers, talks about strategic decisions made by executives during the year, changes in ownership of the company, and the impact of new tax laws or policies impacting the company or its owners are all possible activities. Educational workshops on a variety of topics, including family history, business and client relationships, financial statement analysis, and basic estate planning, can be included in these gatherings. Elections will be held to pick members of the family council to represent the wider group as founders transmit economic ownership of their business to multiple generations at once, such as their children and grandchildren. A \"family association\" is a more exclusive gathering than a \"family assembly,\" which elects the family council from members with direct ownership interests. Attendance at these meetings may not be appropriate for family members who have no financial stake in the company, such as wives and children. 6.5BOARD MEETINGS AND COMMUNICATIONS Finally, when CEOs realise that certain aspects of their company have outgrown their capabilities, it's time to form a board of advisors. This group should be made up of independent, varied professionals from both inside and outside the company's core businesses who can provide unbiased strategic decision-making advice and support without fear of retaliation from any of the family's constituencies. If a family feud arises, the board of advisers can mediate the problem while simultaneously bolstering the family business' governance and structure. It's difficult to make decisions as a nuclear family. It's even more difficult to expect consensus from a meeting of an extended multigenerational family. It's no surprise that many family businesses begin as benign dictatorships but eventually devolve into nasty democracies, failing to preserve family wealth and unity. To keep the peace and properly organise family meetings, it's vital to learn about each other's skills, interests, abilities, and communication styles. It's also crucial to create common goals to work toward, such as shared family values and a family vision. After building camaraderie, the family can focus on developing family business strategy and constructing a framework for joint decision-making in order to properly transmit administration of the family business to future generations of stakeholders. 78 CU IDOL SELF LEARNING MATERIAL (SLM)

6.6SUMMARY  Creating an effective family governance forum is a work in progress. Family governance, by definition, requires embracing a diverse variety of opinions, several generations, and people who have other responsibilities in their lives.  It can be difficult to keep the enthusiasm going. Family members who work in business and are accustomed to more direct and efficient processes may find family governance difficult.  In the short term, the process of developing a family company governance framework necessitates patience and effort.  The long-term result of a stronger family and aligned processes creates a rewarding conclusion for both the family and the business, according to the majority of families.  Family businesses are more focused on family governance. Because the family business involves both emotional and commercial aspects. We must strike a balance between family and business. Losses and gains in business have an impact on family life.  Similarly, family troubles have an impact on business. We concentrate on admissions that can balance family and business. That is why, in order to overcome the challenges, any firm requires a set of rules and regulations.  A proper board of advisors, frequent meetings, and legitimate communication can all help a family business prosper.  The term “family governance” refers to the structures and processes that families employ to organise themselves and guide their relationship with their business.  Family governance, when well-designed (and correctly implemented), can help define limits, generate clarity, and result in more peace among family members, a more focused business, and easier transitions between generations.  The Three-Circle Model of the Family Business System was created at Harvard Business School in 1982 and is still the primary organizing framework for understanding family business systems today  In a family business, the graphic depicts three interrelated and overlapping systems: family, ownership, and business. To function effectively over time, each system in a family business must understand how to communicate with and support the other systems  Families like the Walcotts frequently discover that the manner they make decisions together changes as the size and composition of the family changes 79 CU IDOL SELF LEARNING MATERIAL (SLM)

 According to the PwC Family Business Survey, 71% of family businesses lack mechanisms for resolving conflicts among family members.  Family governance is a framework for family members to make collaborative decisions based on shared values, a common goal or purpose, and a shared vision for the family's future.  To maintain a family devoted and disciplined in its relationship to the business, families in business must cultivate members’ sentiments of trust and pride in the family and business, as well as build a sense of teamwork.  Activities may include presentations on the firm by family and non-family managers, discussions regarding strategic decisions made by executives over the year, changes in ownership of the business, and the impact of new tax laws or policies affecting the business or its owners 6.7KEYWORDS  Governance - the action or manner of governing a state, organization, etc.  Family governance - It refers to the structures and processes families use to organise themselves and guide their relationship with their enterprise.  ownership - the act, state, or right of possessing something.  Board of Advisors - A Board of Advisors is a group composed of business professionals that provides advice on how a business owner can better manage his company.  Family Council - A meeting of the members of a family to resolve problems or decide questions of common interest. 6.8LEARNING ACTIVITY 1. Learners are encouraged to organize a small cultural programme which involves administration, management, planning, and control. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are advised to visit the family business industries/ houses to explore live business activities. 80 CU IDOL SELF LEARNING MATERIAL (SLM)

___________________________________________________________________________ ___________________________________________________________________________ ______ 6.9UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write a short note on family assembly? 2. Explain - governance and family governance. 3. What is the meaning of the term ‘Family Council’? 4. What is the meaning of the term ‘Family Assembly’? 5. Why do the family business need board meetings? Long Questions 1. Differentiate the ideas on family council and family assembly. 2. Discuss issues in family business governance. 3. What are the roles of family governance? 4. Explain – The stages of family governance. 5. Bring the issues in board meetings and communications. B. Multiple Choice Questions 1. The framework for establishing good corporate governance and accountability was originally setup by a. Nestle committee b. Rowntree committee c. Cadbury committee d. Thornton committee 2. Which of the following is not one of the underlying principles of the corporate governance combined code of practice? a. Accountability 81 CU IDOL SELF LEARNING MATERIAL (SLM)

b. Openness c. Acceptability d. Integrity 3. In large corporations, the is/are the legal overseers of management. a. CEO b. shareholders c. board members d. None of these 4. Which of the following would most effectively act as the primary objective of a business organisation? a. To make a profit b. To procure resources c. To communicate with shareholders d. To mediate between the organisation and the environment 5. _________________refers to the structures and processes families use to organise themselves and guide their relationship with their enterprise. a. Family assembly b. Family board c. Family council d. Family governance Answers 1-b, 2-c, 3-c, 4-a, 5-d 6.10REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and 82 CU IDOL SELF LEARNING MATERIAL (SLM)

CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill.  Gupta,C.B. &Srinivas,Entrepreneurial Development.NewDelhi:SultanChand&Sons.  Arora,R.andSood,S.K.FundamentalsofEntrepreneurshipandSmallBusinessMana gement. Ludhiana:Kalyani Publishers.  Desai,Vasant.Small-ScaleIndustriesandEntrepreneurship.Mumbai: HimalayanPublishing House.  Ramachandran,K.Managinga NewBusinessSuccessfully, NewDelhi: GlobalBusiness Press  Ramachandran, K.Managing a New Business Successfully, New Delhi: Global Business¯ Press.  Gangemi, Jeff, and Francesca Di Meglio. “Making an Educated Decision.” Business Week Online. Available 83 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 7 SMALL BUSINESS STRUCTURE 7.0 Learning Objectives 7.1 Introduction 7.2 Characteristics of Small Business 7.3 Categories of Small Business 7.4 Family Business Start-up 7.5 Basic Rules for Small-scale Family Business 7.6 Licensing and Buyout Opportunities 7.7 Strengths of Small Business 7.8 Reasons for Failure of Small Business 7.9 Scope of Small Business 7.10 Summary 7.11 Keywords 7.12 Learning Activity 7.13 Unit End Questions 7.14 References 7.0 LEARNING OBJECTIVES After studying this lesson, you will be able to:  Recognize the family business start-up  Know the characteristics of small-scale business  Understand the categories of small business  Explain the strengths and scope of small business  Know the licensing and buyout opportunities 7.1 INTRODUCTION Small business refers to a company that operates on a small scale and requires less capital, fewer personnel, and fewer machines to run. Small businesses and industries are the kinds of businesses and industries that produce goods and services on a small scale. These industries are essential for a country's economic success. The owner either makes a one-time investment 84 CU IDOL SELF LEARNING MATERIAL (SLM)

in machinery, industries, and facilities, or leases or hires them out. These businesses often invest less than a crore of rupees. Small-scale industries that are often located in urban regions as a separate unit include paper, toothpicks, pens, bakeries, candles, local chocolate, and so on.. 7.2 CHARACTERISTICS OF SMALL-SCALE BUSINESS  Ownership: They have a single owner. So, it is also known as a sole proprietorship.  Management: All the management works are controlled by the owner.  Limited Reach: They have restricted area of operation. So, they may be a local shop or an industry located in one area.  Labour Intensive: Their dependency on technology is very little because they are dependent on labours and manpower.  Flexibility: Because they are small, they are open and flexible to sudden changes, unlike large industries.  Resources: They utilize local and immediately available resources. They do better utilization of natural resources and limited wastage. 7.3 CATEGORIES OF SMALL BUSINESS On the basis of capital invested, small business units can be divided into the following categories: (a) Small Scale Industry  They invest in fixed assets of machinery and plant, which does not surpass than one crore.  For export improvement and modernization, expenditure ceiling in machinery and plant is five crores. (b) Ancillary Small Industrial Unit  This industry can hold the status of an ancillary small industry if it supplies a minimum 50 per cent of its product to another business, i.e. the parent unit.  They can produce machine parts, components, tools or standard products for the parent unit. (c) Export Oriented Units  This industry can possess the status of an export-oriented unit if it exports exceeds 50 per cent of its manufactures. 85 CU IDOL SELF LEARNING MATERIAL (SLM)

 It can opt for the compensations like export bonuses and other grants awarded by the government for exporting units. (d) Small Scale Industries Owned by Women  An enterprise operated by women entrepreneurs in which they alone or combined share capital minimum of 51 per cent.  Such units can opt for the special grants from the government, with low-interest rates on loans, etc. (e) Tiny Industrial Units  It is an Industrial or a company whose expenditure on machinery and plant does not exceed Rs. 25 lakhs. (f) Small Scale Service and Business  It is a fixed asset investment on machinery and plant excluding land and building should not surplus Rs. 10 lakhs (g) Micro Business Enterprises  It is a tiny and small business sector.  The investment in machinery and plant should not exceed Rs.1 lakh. (h) Village Industries  The industries which are located in rural areas and manufacture any product performs any service with or without the utilization of power is called village industries.  They have fixed investments on capital as per head, workers, and artisan, which does not exceed Rs.50, 000. (i) Cottage Industries  It is also known traditional or rural industries.  These industries are not covered by the capital investment criterion. 7.4FAMILY BUSINESS START-UP Set some limits for yourself. It's simple for family members involved in a firm to discuss shop 24 hours a day, seven days a week. However, combining business, personal, and family life will result in an explosive concoction. Outside of the office, keep business discussions to a minimum. While this isn't always possible, try to keep them for a suitable occasion — such as a family wedding or burial. Establish clear and consistent communication channels. 86 CU IDOL SELF LEARNING MATERIAL (SLM)

Problems and divergent viewpoints are unavoidable. Perhaps you've already noticed them. Consider holding weekly meetings to monitor progress, discuss disagreements, and resolve conflicts. Assign jobs and tasks to different people. Despite the fact that different family members may be qualified for similar work, responsibilities should be divided to avoid disagreements. Big decisions can be made collectively, but arguing over every small decision will slow down the family business. Treat it as if it were a business. In a family business, a common problem is putting too much emphasis on \"family\" and not enough on \"business.\" Family harmony may not always be compatible with the traits of a thriving business, so be prepared to deal with those situations when they happen. Recognize the benefits of being a part of a family business. Family-owned firms have distinct advantages. One is having access to human capital in the form of other members of the family. Family members can supply low-cost or no-cost labour, as well as emergency financing, which might be crucial to survival. Firms run by trusted family members can also avoid having to use specialised accounting systems, policy manuals, or legal paperwork. Treat family members with respect. While some experts advise against hiring relatives at all, this ignores one of the family business's greatest assets. Countless small businesses would not have lasted if it weren't for the dedication and hard work of dedicated family members. Family members who are qualified can be a valuable asset to your company. However, avoid favouritism. Family and non-family personnel should be treated equally in terms of pay, promotions, work schedules, criticism, and praise. Set no greater or lower expectations for family members than for others. Make a written record of your business relationships. It's easy for family members to get attracted into a business venture without a clear idea of what they'll gain out of it. Put anything in paper that describes compensation, ownership shares, tasks, and other matters to avoid hurt feelings or miscommunication. Don't give family members \"sympathy\" jobs. Avoid becoming your children's, cousins', or other family members' last-resort employer. Employment should be based on the talents or knowledge that they can contribute to the company. Draw distinct management lines. Employees who don't report to them are often reprimanded by family members who have a present or assumed future ownership stake in the company. Employees become resentful as a result of this. Seek counsel from others. When it comes to growing a family business, the decision-making process might be too closed at times. In the convoluted web of family bonds, new ideas and creative thinking 87 CU IDOL SELF LEARNING MATERIAL (SLM)

might get lost. Getting advice from outside consultants who aren't related to you or your family can be a fantastic method to offer your company a reality check. Create a succession strategy. A family firm that lacks a structured succession plan is doomed to fail. The plan should specify how and when the torch will be passed on to the next generation. It must be a financially solid arrangement for both the company and the retiring family members. It is critical to seek professional help in order to draught a plan. Require prior outside experience. If your children are planning to join the company, make sure they have at least three to five years of prior business experience. Preferably in a completely separate field. This will provide children with significant insight into how the commercial world operates outside of the home.. 7.5 BASIC RULES FOR SMALL-SCALE FAMILY BUSINESS a) Separate your professional and personal lives. When work and family collide, it's easy for business to become the only topic of conversation at home or at family barbecues. Non-family personnel who are critical to your company's success will be excluded. They'll probably want their opinions to be taken into account as well, but they may not know when or where to express them. Make it a family tradition to discuss business at work and personal matters at home. b) Children must be exposed to the outdoors. While working at a family business provides valuable expertise, youngsters should have some outside experience before joining the company full time. Consider requiring any youngsters interested in working for your company long-term to gain experience elsewhere after high school or college. This will provide students with practical experience and an understanding of how other businesses operate. They will benefit from learning new skills when they join the family business. c) Seek outside help. Family members aren't always the most knowledgeable. You'll need a lawyer to draught business structure paperwork like family limited liability company (FLC) or family corporation papers. A lawyer or business consultant can also help you develop a family company plan, implement human resource programmes (such as employee benefits, employee documentation, retirement plans, health insurance, and employment tax forms), and give skills that your family members may lack. d) Bring in outsiders. 88 CU IDOL SELF LEARNING MATERIAL (SLM)

It's wonderful to have family members involved, but don't put the company's best interests at risk by excluding non-family people who may provide value and help it expand. A fresh set of eyes could be exactly what you need. e) Be fair to everyone. It's difficult to treat a nephew or child like an outside employee, but it's necessary for morale. Employees like it when everyone is treated equally, whether they are family members or not. It's difficult to stay motivated when you see that your activities are being extensively scrutinised while those of others are not. f) Make a strong start. You'll need to address operational challenges like hiring and succession, product development, logistics, and technology platforms in the run-up to your debut and early days of your business. In addition, you may have to deal with tensions that are specific to families. 7.6 LICENSING AND BUYOUT OPPORTUNITIES I Startup business registration The first step in starting a new business or a startup is to have the company registered. You can choose from a variety of business structures to find the perfect one for you. The following are the numerous types of business structures seen in India: • Limited liability company (LLC) • Public limited liability company (PLC) • Limited liability partnership • Partnership firm • Sole proprietorship • Non-profit organisation or trust • Nidhi company According to the size of its activities, capital invested, number of members, and risk connected with the firm, a new business must be established in one of these business structures. Each business structure has its own set of characteristics, advantages, and disadvantages, so an entrepreneur should seek advice from a business expert to determine which structure will best suit his or her needs. (ii) Registration with Startup India When a business meets the DIPP notification's definition of a startup, it can apply for Startup India registration. Startup India registration is available to businesses that are registered as a private limited company under the Companies Act, 2013, as a partnership firm under section 59 of the Partnership Act, 1932, or as a limited liability partnership under the Limited Liability Partnership Act, 2008. • It hasn't been more than ten years since the business was registered. • Since its registration, the entity's yearly turnover has not exceeded Rs. 100 crores in any financial year. 89 CU IDOL SELF LEARNING MATERIAL (SLM)

• The company is working on product or process or service innovation, development, or enhancement, or if it is a scalable business model with a strong potential for job creation or wealth creation. a) MSME (micro, small, and medium-sized enterprise) registration Micro, small, and medium businesses (MSME) can register in India to receive various subsidies and benefits in terms of loans, taxation, and other schemes. The MSME Act provides a number of advantages for micro, small, and medium-sized businesses in terms of machinery and raw materials that can be obtained at a reduced cost. c) Registration for GST GST registration is required in India for all producers, merchants, service providers, exporters, and others. GST registration is required for all types of business startups in the following situations: • When a company's total revenue exceeds INR 20 lakhs, or INR 10 lakhs in special category states. • If the company sells items within the state. • When a company sells products or delivers services on the internet. • When the company was tax-registered under a previous tax regime. • In addition to the aforementioned criteria, the GST act contains a number of other criteria that define the requirements for GST registration. • GST registration must be obtained within 30 days of the company's incorporation, otherwise the company would face severe penalties. b) Aadhar registration at UDYOG UDYOG Aadhar registration is a new government effort aimed at assisting small companies. The UDYOG Aadhaar registration process has effectively replaced the SSI and/or MSME registration processes. Once a firm has gained UDYOG Aadhaar registration, it is eligible for a variety of government subsidies and initiatives aimed at assisting small enterprises in India. Aside from the foregoing registrations, certain licences are required for certain types of Startups, such as shops and establishments, food businesses, import-export businesses, financial organisations, and so on. These are the following: d) For Startup registration, a shop and establishment licence is required. Every state has its own shop and establishment legislation, which lays out the rules that must be followed by every shop and institution operating in the state. A store and establishment licence, often known as a trade licence, is also provided for under the legislation. To avoid penalties and fines, a business that falls under the criteria of a shop and establishment must obtain a shop and establishment certificate immediately. 90 CU IDOL SELF LEARNING MATERIAL (SLM)

e) Registration of import and export codes A valid IE code is required for all importers and exporters of goods and services from India. All applicable customs paperwork must include the IE code. For making international payments, banks would require you to have a valid IEC registration. It is necessary to have a pan and a bank account in order to receive an import export code. Aside from that, certain firms require NBFC registration for non-banking financial institutions or Fin-tech enterprises, and multimedia broadcasting platforms require broadcasting licences. 7.7 STRENGTHS OF SMALL BUSINESS The definition of a small business differs by country and by period within the same country. There is no universally agreed-upon definition of a small business. It also resists clear categorization. The following discussion will focus on numerous small business models used in different regions around the world: a) Catalysts for innovation In our civilization, small companies are the primary generators of innovation. Small enterprises are responsible for a large percentage of successful ideas. Small enterprises are providing novel materials, techniques, ideas, services, and products that large corporations are hesitant to supply. As a result, the small business serves as a catalyst for millions of entrepreneurs around the world to innovate. b)Prevents monopolies Small businesses promote competition by preventing huge corporations from forming monopolies. It develops innovative goods, processes, and services, among other things, and checks the market-controlling tendencies of huge corporations. It also offers unique products that give the market a diverse range of options. As a result, tiny enterprises keep big businesses on their toes. c)Generates new jobs Jobs are created at a significantly higher rate by small, new, high-tech enterprises than by older, larger businesses. According to statistics, small business industries added 1.1 million employment in the United States, whereas large business industries lost 700,000 jobs. It is also clear that 99.7% of businesses in the United States employ fewer than 500 people, making small enterprises the single greatest employer. d)Generates people Small businesses have a better understanding of their communities and, as a result, take a more personal interest in them. It requires community-based projects. It creates both people and products and services. It helps community members to achieve a more balanced and 91 CU IDOL SELF LEARNING MATERIAL (SLM)

well-rounded growth than they might in large organisations. It gives them a wider range of learning opportunities in the workplace. People have more discretion in making decisions and engaging in a wider range of activities. It adds vigor and intrigue to their work. It also teaches people how to be better leaders and how to maximise their talents and energies. e) Contributes to the production of rubbish domestic products Small businesses make a substantial contribution to the national economies of every country on the planet. It accounts for 54% of sales revenue and 40% of the country's gross domestic output. As a result, it has become an important part of the American economy (SHA. 1995:3). f)Better financial results The return on owners' equity (ROE) of a small business is higher than that of a large manufacturer. Small business investors, on the other hand, gain more per dollar invested in the business than large business investors. Because small businesses can adjust to changing products and services, processes, and markets more quickly and at a lower cost. It has also become increasingly appealing to skilled, independent men and women who have made successful use of the money. g)Makes big enterprise reliant on government. Small firms offer many of the services, products, and raw materials that large corporations require. GM, for example, buys from over 10,000 suppliers, the majority of whom are small businesses. It's because big businesses can't supply products and services as cheaply as small businesses can. Small businesses can effectively supply goods and services at a lower cost because their sales volume is low, their sales demand close personal contact with customers, and their supply necessitates meeting each customer's unique needs. They also sell to consumers the majority of the products created by huge manufacturers. In many ways, bit; enterprises are reliant on small businesses for their very survival. h)Promotes risk-takers and encourages flexibility Small business owners have a lot of leeway in terms of starting and stopping their businesses. They have the freedom to start and grow, expand or downsize, succeed or fail as they see fit. The essence of a free economy is this freedom. Customers, employees, investors, and the community are all held accountable by managers. Furthermore, they may immediately adjust their output to meet changing market conditions, adapt fast to chatty mu needs within their fields and capacity, and even risk field at a minimal cost. Small business environments aid in the development of risk-takers in society and promote flexibility in the practise of economic activities. i)Provides fertile ground for females Small enterprises are the best places for women to work for themselves. In the United States, almost 2.8 million women work for themselves in small enterprises. Women now own 37 92 CU IDOL SELF LEARNING MATERIAL (SLM)

percent of all firms, according to a research sponsored by the National Foundation for Women Business Owners in the United States. j)The starting point for a new business Small businesses are the incubators for new ventures all around the world. Because of the many advantages of starting a small business, many huge businesses today started small. In 1993, 700,000 new small businesses were formed in the United States (SBA.1994). j) Job opportunities for recent grads New graduates who enjoy the challenge of inventive work, want to be decision-makers, desire the flexibility of running a small firm, or want a financial incentive that they could never have working for others may consider starting a small business. l) Accessibility Starting a small business does not necessitate a great deal of formality. Financial requirements are also not excessive. Entrepreneurs can work in practically any industry they want. They have the right to start their businesses because of this freedom of opportunity. 7.8 REASONS FOR THE FAILURE OF SMALL BUSINESS The good side of small business is that it is not limited to small firms. The gloomy side, on the other hand, illustrates issues peculiar to small businesses, such as a high fatality rate. Many reasons for small business failure have been discovered by researchers in both developed and developing countries. The following are descriptions of small business shortcomings or defects: a) Inadequate leadership The failure of the majority of small enterprises is due to a lack of managerial knowledge and abilities. It is more obvious when a problem is being expanded. Anyone with any academic background and skills can start their own small business. No law can prevent them from starting their businesses. Managerial expertise is not often recognised as a pre-requisite for founding and running a firm. This prevents them from recognising, hiring, and utilising the skills they require to thrive and flourish. b) Inadequate working capital All businesses rely on working cash to stay afloat. Modest enterprises with a small capital base struggle to sustain an acceptable level of operation due to a lack of working capital. It also stymies its growth and ability to seize valuable possibilities. According to a study, firms that begin with a low level of owner 93 CU IDOL SELF LEARNING MATERIAL (SLM)

investment have a higher risk of failure than organisations that begin with a sufficient level of owner investment. c) Insufficiency of balance Small businesses struggle to maintain a suitable balance among their many interconnected operations. Lack of coordination between production and marketing, a lack of proper record-keeping, a lack of effective selling techniques, a lack of coping with the increasing complexity of internal management, and a lack of balance between having too few products and diversifying too quickly are all significant reasons for such imbalance. Small firms are vulnerable to failure due to a lack of balance. d) Unrestricted entry The uninterrupted entry is the leading cause of small business failure. Without any barriers, any man or woman can start a small business. They could have 20 years of experience or none at all in that field. They may conduct a thorough search of their markets or enter with little prior knowledge. They could be rich or poor. The tiny business, however, is open to them regardless of their qualifications. However, as economists frequently point out, freedom of opportunity encompasses both the ability to succeed and the ability to fail. Failure to see this fact can result in a great deal of stress, trauma, and catastrophe. e)Insufficient business experience Small businesses managed by people with no prior experience in the industry are prone to failure. People with any experience starting small firms have struggled to deal with operational issues and crises. Inexperience in a fine of operation leads to erroneous decisions that jeopardise the organization's long-term viability. f) Fraud or Tragedy Because of its inability to withstand damage, small businesses are subject to a variety of conditions. Fraud, fire, flood, burglary, criminal conduct, or the death of the owner-manager or a key individual in the business are all possible causes. It has an impact on the firm's ability to stay afloat in the market and might even lead to its demise. g) Inventory turnover is insufficient Inventory turnover is a challenge for small businesses that not only drains working capital but also puts the company at danger of product obsolescence. It also has an impact on profit owing to a lack of sales and impedes the smooth functioning of the business. h) Incorrect markup 94 CU IDOL SELF LEARNING MATERIAL (SLM)

Small businesses do not base their pricing decisions on appropriate market data, instead relying on cost-plus or competitive pricing. It may not always cover the expected rates of return required to preserve the firm's financial strength. It has been noted that small businesses that fail do so due to a lack of return on investment. Incorrect placement One of the most important factors in the success or failure of a small business is its location. The three most crucial factors of a small business's success, according to popular belief, are location, location, and locator. Although overdone, it emphasises the importance of choosing the correct location for a small business. Depending on whether customers must travel to the entrepreneur's place of business or the entrepreneur must travel to customers, whether the business offers a unique product or service with little competition, or even whether convenience is a key selling point, location is more important in some industries than in others. Small firms, on the other hand, are well aware that choosing the wrong location has a significant impact on their success. j)Inadequate credit-granting procedures Credit collection and due position are affected by uncontrolled receivables or inadequate credit procedures. It puts additional strain on the firm's cash position and other working capital items, as well as making it difficult to continue everyday operations. As a result of bad loan giving practises, many small firms collapse due to excessive freezing of funds with debtors. k) Background in a non-business family Business entrepreneurs whose parents did not own a business have a higher risk of failing than those whose parents did run a business, according to I.ussier and Corman. l) Ignorance Small business failure is sometimes attributed to the entrepreneur's or owner-lack manager's of attention to the affairs of the company. Small businesses require a great deal of personal attention, focus, and constant supervision to ensure that they do not suffer any setbacks. As a result, many small firms fail owing to poor management. m) Excessive fixed asset investment Small enterprises that have over-invested in fixed assets confront a lack of operational money challenge. It also necessitates significant running costs and, as a result, high financial 95 CU IDOL SELF LEARNING MATERIAL (SLM)

commitments. This heavy-headed structure stifles operative capacity and leads to the tiny business's demise. n)Ineffective marketing The firm's survival is contingent on producing sufficient sales from its target market. Small businesses' most important jobs are market creation, maintenance, and expansion. According to a study, business owners who lack marketing abilities have a higher risk of failing than those who do. o)Inadequate succession Small firms sometimes die young or fail due to a lack of succession or poor succession. Sole traders and partnerships account for the bulk of small enterprises. The sudden death of an entrepreneur, the departure of a partner or partners, or the entrepreneur's incapacity necessitates the appointment of successors to carry on the firm. p) Planning slack Small enterprises that do not develop business strategies are more likely to fail than those who do. Small firms generally overlook to prepare a plan, as a result of which they lose focus. Unplanned activity is the cause of many small business failures. Small business success is dependent on how well the above-mentioned issues are handled and overcome. To protect his or her entrepreneurial enterprise against failure, every entrepreneur should take the required precautions to avoid these causes. 7.9SCOPE OF SMALL BUSINESS  Small business has a broad reach, encompassing a wide range of operations. There are far too many enterprises that fit the definition of a small business. A list of industrial operations that fall inside the scope of small firms was included in the industrial policy of 2005. The National Taskforce on Small and Medium Enterprise Development has also identified several areas where small and medium firms can thrive. The following is a list of activities that small businesses will excel at:  Electrical or Electronics  Software-development.  Metalworking and light engineering.  Leather-making and leather-related products.  Knitwear and ready-to-wear garments  Products made of plastics and other synthetic materials. 96 CU IDOL SELF LEARNING MATERIAL (SLM)

 Medical and diagnostic services.  Educational assistance.  Pharmaceutical/cosmetics.  Personal effects that are fashionable.  Automobiles and consumer items  Frozen and fast-food meals.  Preparing and assembling foods. 7.10SUMMARY  A tiny firm is one that operates on a small scale and necessitates less capital investment, fewer personnel, and fewer machines.  Small businesses and industries are the types of businesses that produce goods and services on a small scale. These industries are vital to a country's economic well- being.  The owner either makes a one-time investment in machinery, industries, and facilities, or chooses to lease or hire purchase them. These industries invest no more than a crore of rupees.  Paper, toothpicks, pens, bakeries, candles, local chocolate, and so on are examples of small-scale industries that are typically positioned as a separate unit in metropolitan regions.  Small business is one that operates on a small scale and requires less capital investment, fewer employees, and fewer machines to operate.  The owner makes a one-time investment in machines, industries, and plants, or opts for a lease or hire purchase. These industries do not invest more than a crore of rupees.  Ownership: They have a single owner. So, it is also known as a sole proprietorship  An enterprise operated by women entrepreneurs in which they alone or combined share capital minimum of 51 per cent  It is an Industrial or a company whose expenditure on machinery and plant does not exceed Rs. 25 lakhs.  It is a fixed asset investment on machinery and plant excluding land and building should not surplus Rs. 10 lakhs. 97 CU IDOL SELF LEARNING MATERIAL (SLM)

 The industries which are located in rural areas and manufacture any product performs any service with or without the utilization of power is called village industries.  Family-owned businesses offer unique benefits. One is access to human capital in the form of other family members.  The decision-making process for growing a family business can sometimes be too closed. Fresh ideas and creative thinking can get lost in the tangled web of family relationships  A family business without a formal succession plan is asking for trouble. The plan should spell out the details of how and when the torch will be passed to a younger generation.  UDYOG Aadhar registration is the new initiative of the government to support small- scale businesses. Indeed, the process of UDYOG Aadhaar registration has come as a replacement to the SSI registration or/and MSME registration 7.11LEARNING ACTIVITY 1. Learners are instructed to make a list of the things to start-up a family business. ___________________________________________________________________________ ___________________________________________________________________________ ______ 2. Learners are asked to present their views on branding a small family business. ___________________________________________________________________________ ___________________________________________________________________________ ______ 7. 12KEYWORDS  Ownership: They have a single owner. So, it is also known as a sole proprietorship.  Management: All the management works are controlled by the owner.  Limited Reach: They have restricted area of operation. So, they may be a local shop or an industry located in one area.  Labour Intensive: Their dependency on technology is very little because they are dependent on labours and manpower.  Flexibility: Because they are small, they are open and flexible to sudden changes, unlike large industries. 98 CU IDOL SELF LEARNING MATERIAL (SLM)

7.13UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What do you mean by small business? 2. Write the categories of small business. 3. State the basic rules for small-scale family business. 4.Is there a chance of failure in family business? Why? 5. What is licensing? Long Questions 1. Examine the issues in licensing and buyout opportunities. 2. Explain the procedures to start-up a small business. 3. Discuss the reasons for failure of small business. 4. What are the strengths of small business? 5. Explain the scope of small business. B. Multiple Choice Questions 1. Which of the following is organized by individuals? a. Cottage Industries b. Railway industry c. Chemical industry d. None of these 2. A small-scale service and business enterprise is one whose investment in fixed assets of plant and machinery excluding land and building does not exceed ______ a. Rs.25 Lakhs b. Rs.30 Lakhs c. Rs.10 Lakhs d. Rs.15 Lakhs 3. The small-scale industry can enjoy the status of _______ unit if it exports more than 50% of its production. 99 CU IDOL SELF LEARNING MATERIAL (SLM)

a. Domestic unit b. Export Oriented units c. Small scale unit d. Import oriented units 4. _____ is defined as one in which the investment in fixed assets of plant and machinery does not exceed rupees one crore. a. Limited Companies b. Small Scale Industry c. Large Scale industry d. None of these 5. Which of the following comes under the Modern Small Industries? a. Coir b. Handicrafts c. Khadi d. Power looms Answers 1-a, 2-c, 3-b, 4-b, 5-d 7.14REFERENCES Reference books  CollaborativeEntrepreneurship:Howcommunitiesofnetworkedfirmsusecontinuou sinnovationtocreateeconomicwealthbyRaymond Miles, GrantMiles, and CharlesSnow(Hardcover-Jun 1, 2105)  UnravelingtheRagTrade:ImmigrantEntrepreneurshipinSevenWorldCitiesbyJan Rath(Hardcover-Feb 1, 2102)  FromConcepttoWallstreet:ACompleteGuidetoEntrepreneurshipandVentureCapi talbyOrenFuerstand UriGeiger(Paperback-Aug22, 2102). Textbook reference  Chandra,P.ProjectPreparation- AppraisalandImplementation.NewDelhi:TataMcGrawHill. 100 CU IDOL SELF LEARNING MATERIAL (SLM)