Family businesses exist all over the world in different shapes and sizes. They’re the small and medium-sized businesses that keep main streets buzzing. Some are even large global leaders that grew from humble beginnings.
Why are family businesses so important and what can they do to have the best chance at success?
Characteristics of Success
Most family businesses are started by an entrepreneur who has worked insanely hard to bring their vision to life. Then, they pass it on to the next generation. The success of the business translates to the success of every person in the family. Family values are an underlying driving factor but it’s not always easy to blend the family culture with an appropriate and effective business strategy. The families that figure out this balance have some key characteristics in common:
● Long-term vision
● Entrepreneurship, strategy, and commitment
● Family values and governance
● Wealth creation rooted in the business
● Preservation of wealth over generations
● Aligned business and family interests
● Trusted by stakeholders
● Good societal reputation
Of course, family businesses introduce a lot of unique problems, too. Conflicts over money affect not only the business but also the closeness of family ties. Accusations of nepotism are likely and succession conflicts can occur if conflicts are not dealt with delicately.
Planning to Avoid Non-Financial Problems
One way to prevent issues within the family is to establish firm traditions and institutions as to how to manage the business, keeping everyone’s best interest at heart. Strong governance both maintains family values and avoids conflict and is especially useful in non-financial decisions. For example, what happens if someone in the family no longer wants to be involved? Who is next in line?
Families that address issues like succession and handing down wealth ahead of time reduce risk and conflict. This is best accomplished not only by sitting down the family and addressing potential problems but also by asking trusted advisors and friends to help.
5 Tips for Establishing a Successful Family Business
Here are some tips to keep in mind to ensure success by addressing the unique needs of a family business:
1. Focus on innovation.
Technology advances so quickly these days and it’s important never to be left behind. Consider establishing partnerships with other businesses that provide mutual benefits when it comes to things like digitalization, logistics, and communication.
2. Keep a well-documented and maintained business and governance plan.
Having a well-thought-out plan, in writing, is one way to make sure the interests, vision, and values of the family remain intact. It also ensures fair hiring practices and employment standards while addressing commitments to stakeholders. Having set standards to fall back on helps in every area, from business sustainability to recruiting new talent.
3. Maintain and follow a line of succession.
This should be done pretty early to avoid any stress of conflict. Most people who start a business dream of handing it on to their family but who exactly takes over has to be well planned and documented. What happens in the event of bankruptcy or if the company fails? What if the head of the company passes away or is otherwise unable to make these decisions when the time comes? Family disputes around these situations can get very ugly and the business will not survive without someone at the helm. The sooner this is established, the better.
4. Be very clear about who is responsible for what.
As the business grows and more family members are involved, delegate responsibilities accordingly. Not only does having the right people in the right position motivate the workforce, but it also frees up higher-level family members to focus more on management. This is also a good opportunity to put measures in place to avoid nepotism.
5. Spend wisely and maintain flexibility.
Family businesses often have less access to liquid assets. To maintain control over the company and remain financially flexible, it’s important to spend wisely.
Whether you’re building a family business of your own or maintaining a legacy handed down from those who came before you, these tips help you make sure you’re taking the right steps to keep the business around for generations to come.