Family-owned businesses have historically been the backbone of the American economy, making up approximately 80-90% of all enterprises in North America. With this large of a percentage there are some good reasons why there are a variety of best practices that have grown to support this business model.
There are generally two areas that family businesses should pay close attention to:
1) family dynamics, as it applies to the structure of the business, and
2) financial considerations around operations. Family dynamics can affect how a company operates as people tend to bring their family ‘roles’ into the company.
The patriarch/matriarch will often be in charge and sometimes, younger relatives fill in the support roles with little decision-making ability, as per the typical family structure.
In order to evaluate those roles and to head off potential family ‘traps,’ consider a few of these pointers. One of the most important is to make sure there’s a captain of the ship and a clear chain of command. Identify who will be the final decision maker and make sure that person is empowered to make those decisions. Also make sure to have a clear plan for transferring that power when the time comes and make sure everyone is in agreement.
Don’t assume a family member’s skill sets based on how they perform within the family. Perhaps have an outside advisory team or a mentor to evaluate outside of family perceptions. Sometimes it’s good to have fresh eyes that can evaluate outside of the family structure. In addition, an advisor can help you strategically plan the future transitions of power as the business evolves.
If you have employees that are not family you must make sure to not set up preferential treatment for family members and not employees. Any sort of perceived preferential treatment can undermine employee loyalty and productivity. Maintain separation between the business side and the family side. Try to limit work talk during family time and vice versa. Start being conscious of when you are having conversations with family outside of work that last for more than 15 minutes at a time. If non-family employees see a fair and professional environment it will be easier for all.
Having a clearly defined chain of command is especially important when it applies to the financial health of a company. Money is always a high point of contention when it comes to family arguments. By having a structured process around those decisions you can help remove built-in emotional triggers that don’t benefit the situation. Perhaps you have a board of family members with each having a weighted vote or maybe you just have one person with the understanding that they have the final veto.
Having this decision-making process is also beneficial when evaluating business tools. Often there can be a generational gap in a company that can cause friction when dealing with technology solutions or scrapping old and expensive systems. Adopting modern cost-effective solutions is easier when your family is starting a business today. If your business is older there may be legacy systems and often the founders of the business are more invested in having them and less open to scrapping them. Make sure to frame that with your decision process and have a strong use case to convince reticent stakeholders.
Lastly, make sure to clearly separate business and personal finances. Have separate accounts, credit cards and stay within your budgets for both. When tax time rolls around doing so will make it much easier on you and your accountant.
The good news is that most people polled about their business would not go back to a non-family corporate routine and feel that it has strengthened their family bonds overall. The key is defining what your expectations are amongst the family and continually communicating on the success and failure of the business model.
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