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Solutions to six common family business problems
Forward Thinking Business Blog –
In business, as in life, families are complex entities where emotional factors and conflicting expectations can give rise to tensions within and between generations.
Six common problems that can arise in a family business are:
1. Family grows faster than the business. When this happens, the business may reach a point where it can no longer generate sufficient revenue to support family members.
2. Family members not involved in the business may be unwilling to use profits to fund business growth
3. Family members may expect the business to provide jobs for relatives even if those relatives do not have the skills and/or experience for their role
4. Perceived favouritism in hiring/promoting family members can lead to difficulties attracting/retaining other staff and high turnover of non-family employees
5. Intergenerational tensions. Younger generation may feel pressurised into joining the business. Older generation may be reluctant to cede control.
6. Lack of succession planning. Various studies suggest fewer than 30 percent of family businesses survive the second generation, and only 3 percent survive the fourth.
‘Including non-family members in your management team can be a good way to overcome tensions and ensure that decisions are soundly based’, says Michael Farrell.
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When it comes to tackling these issues, hiring non-family members can be beneficial in a number of ways:
- Professionalising the business: This is particularly beneficial in functions like finance where specialist skills and experience will not just help control costs and maximise revenue, it can also enhance your ability to access capital because it provides reassurance for lenders that your business is well managed.
- Decreasing conflict: Including a non-family member on your board can dilute the influence of an overly-influential individual and defuse family tensions. This will help ensure that decisions are based on sound business reasons rather than on emotional factors.
- Separating policy and execution: While the board should set the policy for your business, it can be an advantage to have a non-family manager in charge of setting targets and overseeing the day-to-day implementation of policy.
- Training and mentoring: A skilled non-family member can help to mentor and coach the next generation — an advantage when it comes to succession planning.
These are just a few examples of strategies that can help overcome common family business problems.
FPM runs regular seminars and briefings for family business owners and managers where we share tips and advice on optimising your business and planning for its successful transition to the next generation.
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