Grow Your Family Business While Preserving Family Relationships
Family business owners often share a similar goal – to grow the business and pass it on to the next generation.
While keeping the business in the family and getting to work with your parents, siblings, or children can be rewarding, managing and growing a family-owned business isn’t without its challenges. Conflicting views on business and family matters such as succession of power, rivalry, favoritism, and disposition of assets often lead to tensions and even legal disputes.
If you want your business to thrive as a family operation, it pays to plan ahead and be prepared to navigate the complexities. Below we’ve listed some ways to avoid the most common pitfalls when managing a family-owned business.
Financial Planning for Your Family Business
It is important for family businesses to build a financial strategy for the long-term. This aims to withstand external impacts such as economic downturns, changes in the industry landscape and potential local or global crises. While ensuring that you turn a profit this quarter and the next is beneficial, proper financial planning that focuses more on the goals for the next generation is what establishes growth, smooth operations, and stability for future years.
In order to grow your family business, your financial strategies should focus on putting the interests of customers and employees first, adapting to market uncertainties, accurate budgeting, managing risks in long-term investments, and promoting social responsibility.
Business Management Planning
One of the most critical drivers of growth and good bottom line performance for family businesses is strategic business management planning. An effective plan in this area includes:
- A formally agreed business ownership structure
- Determining management control and operational oversight
- Hiring policies for family members
- Compensation plan for family members who are active in the business (and those who are not)
- Succession planning
Managing Family Issues
Family issues are unavoidable when running a multi-generational business. Disagreements on business matters such as mergers, sales, acquisitions, profit distributions, and compensation can be detrimental to the business operations and to relationships.
When it comes to compensation and profit distribution, each family member who is a shareholder expects a share of sales proceeds and salaries. The best practice is to assess this based on comparable positions at similar companies.
It is also important to note that just because someone is a member of the family does not mean they must automatically be employed in the company. Only those who can perform well should be hired. Someone who is not suited to the business may actually be happier working in a field they are better suited to.
Some of the criteria that should be considered include the family member’s skills and capabilities, education and other training, personal motivation to join, temperament, and the business’ ability and need to support the hire. A well-defined job description and performance evaluation process should be a part of the system of employment for family members. This keeps the business expectations professional not personal.
To ensure that the core values, principles, and ethics are sustained across multiple generations, all family members employed in the business must do their part and cooperate. Failing to do so leads to mediocre quality of output, poor customer service and customer satisfaction, as well as tainted family business reputation.
A clear set of values and principles well outlined business model and vision can help guide difficult conversations and help preserve familial relations within the business.
Succession Planning in Family Business
Succession planning refers to determining company leadership and to whom shares of the company will be left. This process can be difficult with a family business, as it involves resolving conflicts about assets and management. Many businesses fail to continue operating into the second generation and even more don’t survive into the third.
To maintain a family business and retain control in the long term;
- Roles must be defined clearly even if they are held by close family members.
- Strong company leadership and governance systems should be developed and put in place.
- There should be fair and transparent procedures for conflict resolution.
- Robust standards for business ethics and company culture must be established.
- Vision and focus on long-term goals that span towards the next generations should be inculcated in the minds of everyone, particularly those in leadership roles.
Family businesses are typically rooted in shared goals and values, family ownership. It is important to remember that family comes first. When working on your family business and succession plan, take into consideration the personalities involved and how you can manage this within your business. We suggest as with every partnership that you get professional advice to create a solid plan with and partnership agreements set in place to protect all involved. With clear agreements written and agreed upon, you and your family have a reference point to return to, guiding you in the direction of your shared goals.
If you do not already have a succession plan in place, partnership agreements or a clear business outline, we recommend you make this a priority. If you have not looked at your business and succession plan in a while, is it still current and appropriate for your business today? These plans are to protect your business and your family relationships and are best made when business and relations are in a healthy state.
Book a planning meeting here or call us on (08)64360900