AWorldwide, there are an estimated 125 million family businesses – but no one really knows for sure. Grand Valley State University’s Family Owned Business Institute reports that the United States is home to 5.5 million family businesses, employing over 98 million people!
Download a free PDF of this article.
Often times, becoming a family business is something that evolves rather than expected. The founding generation of entrepreneurs build a business on vision, hard work and sacrifice. By executing the vision and creating success, family members are drawn to the business.
|From the guest table to the conference table: practical tools for the governance of family businesses ”
But when two or more generations work together, a whole new dynamic enters the business. Running a business is hard enough. How do family complexities impact business operations?
Statistics on survival rates are not friends of the family business. In fact, most businesses fail in the second or third generation. Good planning is essential for survival.
Here’s what family businesses need to consider and implement in order to increase those survival rates.
Create a succession plan
Writing a succession plan and a buy-sell agreement should be one of the first steps for the first generation as you prepare to pass the business on to the next generation. Having agreed structures, payment schedules, and other crucial decisions documented helps eliminate the potential for family troubles. Be clear in communicating these decisions with all family members who would be affected.
Establish a family governance structure
Family governance is a process or structure aimed at educating and facilitating communication among family members. The three-circle model of the family business system was developed at Harvard Business School in 1982 and continues to be the organizational framework for understanding family business systems. The three components are: family, property and business. Often, each of these components will have its own governance.
Do not create two categories of employees: family and non-family
And don’t put your family members on the payroll unless they’re active contributors. It is important that family and non-family employees are treated equally. Everyone should have performance reviews, be subject to the same employee and administrative policies, and have clearly defined roles within the organization. All employees should follow the same merit system, and that goes for disciplines and awards.
Model the importance of good communication
Making effective communication a priority with all employees is crucial. Ongoing two-way communication opportunities create a family culture for everyone involved. A perception that family members may have more inside information could be detrimental to the rest of the team.
Understand that not all family members are made to be in the company
You wouldn’t hire someone without conducting an interview or verifying appropriate work experience. The same is true of offering a position within the company just because someone is a family member. Success will come when everyone is on the same page in terms of business orientation. You need people with the skills and the passion to make your business successful. Be open and honest about who is – and isn’t – the right fit for your business.
Separate the conference table from the dining table
Everyone aspires to a healthy work-life balance. But how do you separate work and life when it comes to the same group of people? Set limits. Switch off your phone. Be intentional about the times of day you talk about the business. Resist the urge to turn every family reunion into a reunion. Modeling this top-down behavior will give everyone the time they need to be a family, not co-workers.
Family businesses are multiplying. Now is the time to work to help them thrive. For more information, download a free e-book “From the Dinner Table to the Conference Table: Practical Tools for Family Business Governance” and get in-depth information on the topics covered in this article.