Ten ways to ensure your family business does not implode from family matters

Ten ways to ensure your family business does not implode from family matters

There are plenty of advantages to family businesses. They tend to be financially conservative by nature, and focus on slow and steady growth; they are capable of reacting quickly and making prompt decisions as well as having the advantage of a long term perspective. However there are pitfalls, and if not addressed could end up causing a family business downfall.

1. Ensure your son or daughter understands what is required to join the business

Would you employ you son or daughter despite a potential lack of qualifications? What can they bring into the business over other potential candidates?  It may be that the family business is seen by the younger generation as a certainty, a safety net that they have taken for granted. If so, they may have taken their foot of the gas in terms of schooling and decided not to go to university, or put the effort into gaining relevant experience as a result. This is where the parent should set expectations early and insist on the requisite qualifications that would be required of a non-family member, after all the future of the business will potentially rest in their hands.

2. Make sure that training is undertaken

When you take on a new employee, unless you are very lucky, it is highly likely that there will be gaps in their ability compared to those required by the job and training will be required.  This also applies to taking on family members, in fact it is more important as the family member is likely to need to understand the wider aspects of the business.  It is vital no matter who is taken on, that formal and ‘on-the-job’ training is given and that career development is planned.

 3. Only take on family members if the business can support them

There is no point in taking on a family member if the business cannot support them. This could damage or even cause the demise of the business.  A son or daughter (as any other employee) coming into the business will expect competitive remuneration and is likely to be looking to get on in life with all of the usual trappings, for example a mortgage.  They may be prepared to wait a year or two, but if the business cannot sustain an additional employee it needs to be recognised as this will affect everyone already in the business by adding to the inherent costs, cash flow etc.

4. Ensure diversity

There will be specific areas of the business where the founder (e.g. parent) has focussed on and has an extensive knowledge of, for example they may have developed a piece of software or hardware.  It would be healthy to engage other family members in other areas of the business to ensure a wider appreciation of the business.  Developing in-depth knowledge in one area of the business and little in other areas is likely to cause a distortion when making decisions. Furthermore, and I see this in a lot of small businesses, it can become like an under-9 football game where everyone chases the ball at the same time

5. Appoint non-family members

Getting a fresh perspective on the business from outside the family will provide a much healthier environment.  It will also remove any family prejudices, or at least recognise them.  This can be done by employing non-family members of staff or appointing external advisors – such as CMC Partners.

6. Have a well-planned succession plan

I refer to my earlier blog – A family affair: Ensuring successful Succession. If there is no demarcation at the time of succession, in terms of roles and responsibilities, finance and remuneration and ownership, it will cause a great deal of angst with both the incumbent and the successor.  Communication and a well set out plan is key at any stage, but it is vital during the transition of the business from one member of the family to another.

7. Keep business and family discussions separate

This is not easy, but very important if there are non-family members in the business.  Washing the family’s dirty laundry in public, as far as the non-family employees are concerned is, unpleasant, not professional and will cause distraction to the job in-hand. Similarly, you don’t want your employees feeling excluded by discussing personal matters around them. Although employees will know and understand that they are joining a family business when they take on the job, and they will give you more respect if the business is separated from family affairs.

8. Have an ‘exit’ agreement

There may be occasions when a family member wants to resign to pursue other interests, becomes ill or does not come up to the mark as far as the business is concerned. If an exit agreement is not thought out beforehand this can lead to major disputes, usually over money and compensation.  This can be avoided with a well thought out agreement similar to a shareholders agreement.

9. Avoid Nepotism

It is important that the new family member becomes credible in the eyes of other employees.  Perhaps by obtaining outside work experience, academic qualifications or business experience.  Non-family members will very quickly lose motivation, and will lose respect for under-performing family members who are seen to get away by cutting corners, or have preferential treatment when it comes to matters such as time keeping.

10. Avoid Quarreling

Keep family disputes out of the business and business disputes professional and confined to the office.  Enough said!

Rather than failing for business reasons, family businesses often fail because of family reasons such as conflicting agendas and priorities either at work or domestically. You run the risk that family members assume that the rest of the family is automatically on the same page as them so they do not need to communicate.  It is vital that there is distinct demarcation between the roles of managers, owners, and family members, and that these roles are clarified and understood by all concerned.

As a family business, it is important to not fall into the traps described above. This is where an external advisor can provide a fresh perspective and bring in new ideas into the business.  If you would like to discuss any aspect of the above [with no obligation] please contact me via the form below.

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