Family-run businesses are a big part of the economy. In the UK alone it is estimated that around two thirds of SMEs are family owned, contributing to about a third of the country’s total GDP. The importance of family businesses can, therefore, not be underestimated.
There are many reasons why running a Family Business makes perfect sense. For starters, family members understand each other well and are more likely to be committed to the business. Family members will be keen to protect the business and its reputation, ensuring that it continues to grow for generations to come. Family businesses are also said to be more trusting of each other and are better at controlling their fate.
Despite the plus points, running a family firm can be riddled with complexities and challenges. Not all family businesses thrive for generations, either. Research suggests that up to 70% of family businesses do not survive entering their second generation of operation, with only 10% thriving into the third generation.
Some family-owned firms find that there is often unwillingness in older generations to either let go or embrace change. Deciding which roles family members should have within the business, and in particular at senior level, can cause conflict and disagreements. Not all family members may wish to enter the business, and may have other ambitions to fulfil, which can also cause tension. Separating personal and working relationships between family members is not always easy, where issues at home may be brought into work. Trying to maintain a balance, and switching off, between family and business life can be a constant struggle. Some family members may have a more relaxed approach to the business, which may result in poor performance or apathy to the business. One of the biggest reasons that family firms fail to survive following the death of the founder family member is that there is no continuity or succession plan put in place.
What can a Family Business do, therefore, to ensure they overcome any difficulties that may compromise the success and longevity of their business?
One of the most important strategies a Family Business should adopt is understanding that the family and the business are two very different systems, which are often in conflict. A family-based business is quite different from an organisation not run by family members. One of the key concerns of a family enterprise is to ensure that the business thrives for generations to come – successful succession and business growth at the core of their values. Planning for the long term is not easy for any firm, so family businesses usually require some form of expert help to ensure that this process is as robust and thorough as possible. Experts with experience in family business matters can help put a plan in place to safeguard family roles and a structured plan of how the business will mature down the line.
The complexities and issues that family firms face necessitate professional financial advice from Chartered Accountants that are experienced in family business matters. It is worth researching firms on the internet that specialise in professional financial advice for family enterprises, and choose one that offers a tailored plan to suit your needs, such as Francis Clark Chartered Accountants.
Specialist accountants can also help family firms to decipher job specifications for family members, helping to see how they fit in with each other within the wider structure of the business. Success also often depends on understanding the business, its visions and goals, and ensuring that all family members are clear about these. Accountants can also help structure plans regarding financial aspects such as shareholder stakes, management and distribution of finances, assets and any wills.
A key strategy that can help family firms thrive is to consider the option of employing non-family employees in addition to family members. This can help create a good balance within the organisation and bring in any skill deficits that might exist. To ensure family and business lines are not crossed, it is important that during work, family members address each other by their names, as if an employee, rather than titles such as mum, dad or grandpa.
Meetings are an integral component of any business, but for the family enterprise: how, where and when these are conducted should be given precedence. Meetings can help to impart information about the business, job roles and functions and offer training opportunities, but many family firms fail to conduct formal business meetings, often doing it over the family dinner at home in the evening. Meetings should take place during working hours, and not creep into after-work scenarios, where it can be difficult to focus or take work-related issues seriously.
Finding answers to key questions such as who makes decisions within family enterprises and how they are made, as well as how differences are managed is crucial. Conflict, in particular, can be an issue with family businesses, so designating a system or family spokesperson to help deal with these can help the business move forward smoothly. Family members should not be forced to work for the business if they really want to pursue another career, as this may result in lack of enthusiasm, motivation and performance. In some cases, it can be advantageous to allow family members to try other careers first, so that they can later bring skills to the business if they then decide to jump on board.
One of the biggest problems regarding family firms is dealing with generational differences and ambitions, which can be markedly different in the younger and older extremes of the family lines. Senior family members may be more reluctant to change or relinquish any power to the younger members, but in order for the business to grow and adapt to changes, all family members should take an adaptable, flexible approach to steering the business forward. Whilst passing down knowledge of how the business is run is a huge part of the training process for family members, it is also crucial for a family organisation to understand that occasionally, external training may benefit the firm, where specific knowledge transfer is not accessible within the family structure. Family enterprises may not be as open to the idea of requiring external training, but it should be considered in certain situations.
Taking all concerns into account, it becomes evident that the key to running a successful family business is through consistent communication. By discussing ideas and concerns, in the right environment, family members can voice their perspective and ideas, in order to end up on the same page.