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Tips for Overcoming Family Business Challenges

family business

Family businesses provide a foundation for the Australian economy, employing half of the country’s workforce. Around the globe, around 80% of businesses are run by families. In Australia, this figure is 70%. Unfortunately, only 30% stay in business after the transition to the second generation. Even worse, only 12% of family-owned businesses survive to the third generation. Here we’ll uncover some of the challenges a family business can face and ways to overcome them.

Succession planning is essential for family business success

One of the causes of failure over successive generations is the lack of succession planning. Sometimes business founders think they can run the business forever, or a succession plan keeps getting put off for more urgent matters. According to the KPMG 2018 Family Business Survey Report, only 17% of family businesses have a documented unifying plan for the future of the business and only 37% have a process of appointing a new CEO/MD. Succession is not something that can be achieved overnight, so it’s better to start before it becomes urgent.

For more successful succession, it is recommended that a board of directors is created that includes non-family directors. They will bring a much-needed outside perspective and not let family issues influence their decisions. Make sure that all stakeholders endorse the succession plan and will be willing to support it.

Avoid nepotism

Putting family members into positions they are not able to do is unfair to the family member and hinder the performance of the business. If a family member is given a role they are not ready for, it will cause frustration among staff and jealousy among siblings. To avoid this, make sure the person is given the role based on merit. If not ready for the role, more training and work experience will be required to gain the skills needed. If the right person for the position can’t be found among family members, it’s better to bring in an outsider who has the needed skills than to get family members involved.

Business roles should have set descriptions and salaries to ensure that the person selected has the skills to do the role. In addition, family members should not go into certain roles because they are expected to do it. To be successful, they have to want to be there and choose the role for themselves. If they have skills and knowledge that are better used outside of the business, it might be better to be employed elsewhere.

Implement structures and systems

Too often, much of the information needed to run the business is in the mind of the founders. On a micro level, writing down policies and procedures for day-to-day operations will ensure ongoing business performance if a founder leaves or can no longer work in the business.

Also, put structures into place for good corporate governance. As noted, a board of directors with outside members will prevent tunnel vision. Bringing in outside managers. This will enable family members to step back and manage wealth instead of day-to-day operations. In addition, forming a family council will enable family employees to discuss business issues, create more cohesion and establish goals.

A good governance program can include a family business constitution. The FINH Family Business Blog outlines six reasons why you should create this document. These include:

  • Laying the groundwork for tough decisions
  • Enabling the creation of ethical guidelines
  • Building cohesion and internal harmony
  • Enabling the improvement of your bottom line
  • Establishing rules around conflict
  • Planning ahead for people entering and leaving the family business.

Get the next generation involved early

Getting the successor involved early will make it possible to get a feel for the family business and what’s involved. Having young family members working during school holidays and part-time will enable them to determine if continuing in the business is for them. By observing from a young they will get an overview of how the business works.

Bring in a family business consultant

Family firms can benefit from having a specialised consultant to create and implement a customised plan to solve challenges and capture opportunities that family-owned small businesses face. A family business consultant can help to align family culture, values and goals with the business.

Listen to all generations

Many family enterprises don’t continue is because the younger generation wasn’t listened to. While founders believe they have tried and tested ways of doing things, the next generation will have innovative ideas on how things can be done better. If younger family members are enthusiastic about introducing new ideas but aren’t taken seriously, they will quickly be discouraged and not want to get involved in the family business in the long term.

Author:

All the thoughts, ideas and musings from the Moula team! Covering everything from work/life balance to general finance tips plus everything in between!

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