The Family Business Advantage, Part 3

Do family businesses have a competitive advantageIn my last two blog posts (here and here) I referred to some studies which stated that family-owned businesses have a competitive advantage over non-family-owned businesses. I decided to do some research on my own, so I selected six publicly-traded companies that are currently family-owned and compared them to six of their publicly-traded competitors that are non-family-owned.

This time, I took the process one step further and reviewed seven privately-held companies that are currently family-owned and compared them to their non-family-owned competitors. As with last time, I reviewed their five-year average performance in four key areas: liquidity, leverage, profitability, and efficiency.

Here are my findings for the privately-held businesses:

  1. Liquidity: I reviewed the current ratio as my evaluation of liquidity. As it turns out, the average current ratio of the family businesses was 2.18, which was slightly below the non-family business average of 2.70. Interestingly, the family businesses tended to to have a much higher percentage of their current assets in accounts receivable.
  2. Leverage: I selected the debt to equity ratio to evaluate leverage. The family businesses I selected averaged 1.91, as compared to the non-family businesses which averaged 1.90. No significant differences noted here.
  3. Profitability: I selected the net profit margin to evaluate overall profitability. Similar to the liquidity results, the non-family businesses had a slight advantage over family businesses. The non-family businesses averaged 3.65 percent, as compared to 2.43 percent for their family business peers.
  4. Efficiency: Lastly, I reviewed the return on assets as my measure of efficiency. The family businesses returned 7.19 percent, as compared to 6.05 percent for the non-family competitors. The family businesses held a slight advantage here.

In the final installment of this series, I will summarize the overall research to conclude if, in fact, family businesses do have a competitive advantage over non-family businesses. Stay tuned!

 

Steven E. Staugaitis, Kreischer MillerSteven E. Staugaitis is a director at Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.

 

 

What do you think? Do family businesses have an advantage? Share in the comments!

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