By Ryan Witt, Vice President – Wealth Advisor
Family disharmony can also equal business disharmony. These four tips can help keep your business running smoothly.
Family dynamics — and the disharmony that can accompany them — are normal. Whether it’s between parents and children, siblings, or in-laws, these squabbles and frustrations tend to remain within the family unit.
However, what happens when a family unit overlaps with a business unit? Running a business is challenging on its own, and when a family is in business together, it’s not uncommon for that disharmony to spill over and become a disruption to all parts of the business. And, it can come back around — when conflicts arise within a family business, they often find their way back to the kitchen table.
The adverse effects of family business conflicts don’t just impact the family. They can have an impact on all aspects of the business, and at every level of operation — from small tasks like preparing reports and taking part in meetings to larger ones like retaining quality employees and establishing the goals of the business. And, feuding family members can sabotage — without meaning to — the progress of the business by creating a toxic environment for non-family employees.
There are many positive aspects to a family business — a high level of commitment, a shared vision and approach to longterm goals, and the infusion of next-generation ideas and innovations. There’s also been research of family businesses that suggest only 30% of family-owned businesses make it to the second generation, and only 13% make it to the third. While discord within a family may not be the primary reason a family business fails, it certainly doesn’t help.
Here are four steps that you can take today to overcome potential challenges in your family business and ensure it’s as rewarding of an experience as possible for everyone involved.
1. CREATE A FAMILY BUSINESS STRATEGIC PLAN
Just as non-family businesses engage in a process of strategic planning to ensure business goals and company mission are aligned, family businesses also need to engage in the same exercise. Engaging all family members in a plan that includes a family mission, goals, responsibilities, and roles ensures that all of you are on the same page with the most important aspects of the business. When family members agree on and understand the business values, it has the ability to shape the overall business mission — and strengthens a commitment to building a profitable enterprise together.
It’s also a good idea for family business to form an advisory board to give counsel to the business leader and provide guidance on company policies. The board should include family members as well as non-family members who can bring an outside perspective and relevant business experience to business operations. These advisors can also bring a healthy dose of objectivity and help to counter emotions of the family members.
2. REMEMBER THAT FAMILY IS FAMILY, AND BUSINESS IS BUSINESS
This action is something that might be easier said than done, but it’s a crucial part in ensuring the success of your family’s business. Establish a company rule, or have family members sign off on a policy, that says family issues must be kept outside of the four “walls” of the business. If any family issues or discord find their way into business dealings, it can be treated like any other violation of company rules — and met with an appropriate penalty.
Keeping the “business” part of “family business” at the forefront can also be accomplished by assigning roles and responsibilities to each family member as you’re going through the work of creating your strategic plan. Having each family member agree to and sign off on their respective area of responsibility can reduce potential conflict in the future. If there is a family member who feels that they’ve been short-changed when it comes to these roles and responsibilities, it’s a good idea to develop specific plans that address advancement, timeline, and milestone for achievement. Providing family members with a clear path to achievement will let them know they’re an important part of the business and their contributions are valued.
3. DEVELOP A PLAN FOR BUSINESS SUCCESSION
According to PwC’s 2019 US Family Business Survey, 58% of family businesses have a succession plan, even though most of them are informal. That still leaves a hefty 42% of family businesses that don’t have a succession plan in place. The succession plan process is often a tough one for families to face, as it requires coming to terms with a hard-to-face fact — that the family member at the head of the company is going to eventually get older and want to retire.
That’s why it’s important that succession planning should begin while children and other younger family members are actively involved in the business. They should already be a part of the company’s strategic planning and the process of establishing long-term family and business goals. As the younger generation gets exposed to this level of the business, it might become clear that one or more of them might not be suited to be a successor, so it will be important to determine what role, if any, they might play in the business.
For the children or other family members that do express interest and demonstrate both the hard and soft skills needed in a successor, a clear development path and timeline should be laid out that will enable them to develop skills, gain experience, and achieve milestone goals. This is where your Advisory Board will also come in handy, as they can create a set of standards and qualifications that must be met. This also helps keep the process objective, as there might be a situation with competing children or family members.
If there are children or family members that express interest in becoming a successor and don’t make the cut, it doesn’t mean they wouldn’t continue to be a valuable part of the business. With any career opportunity, plans for advancement in another role or aspect of the business can be clearly laid out in a way that keeps them encouraged and interested in meeting the goals of the business even if they’re not in the driver’s seat. This could mean heading up a specific division of the company, being assigned to the Advisory Board, or another role in which their input is vital to moving the business forward.
Inevitably, there are situations where there might be discouragement or frustration in not being selected to move the company forward at a high level, and it will be important to plan for those situations so disruptions to the business are minimized.
4. SEEK PROFESSIONAL GUIDANCE
There are a number of business consultants that specialize in family businesses. These consultants, like the non-family members of your Advisory Board, can provide an objective and stabilizing presence when it comes to the emotional biases of family members during business planning.
Think of a consultant as a facilitator or a mediator — one who can make sure the input and opinions of each family member are weighted equally with those of the non-family members, or step in if there are issues that need to be discussed.
These four actions will take time and patience — but they’re critical ingredients for family business success.
If you’re looking for a trusted advisor to guide your family business through succession planning, reach out to the Private Wealth team at First Business Bank. We can help you preserve your family business and craft a plan to ensure its future.Let's Talk