Family owned businesses account for more than 50% of the gross domestic product in the United States. While this type of business model can be extremely profitable. A family-run business can also come with a host of complications. Whenever family is involved, you run the risk of decisions being based on emotion rather than smart business practices, and the health of your business could suffer as a result.
To properly avoid the pitfalls of owning and operating a family owned business, you need to put the right preventative measures in place. This is to properly assess any long-term issues while also making sure you are ready to address any immediate problems as they come.
Assessing Family Members’ Skills and Establishing the Proper Hierarchy
It is important to properly assess family members’ skills alongside their placement in the family itself. This is to ensure that things are running as smoothly as possible. If you have an older sibling who is more qualified for administrative work and a younger sibling who is most effective as a project manager, you have to be careful in how you approach that dichotomy or risk having tensions develop.
You do want to maintain a hierarchical system that takes requisite skills into account in some capacity. But you also do not want to upset the family structure. Encouraging collaboration and effective communication is a good way. This is to make sure that your family members are all on the same page during this process. Maybe, after talking things through, those with more senior positions in the family are fine with ceding business responsibility to younger members. Maybe some concessions need to be made.
Ultimately, the most qualified person should get the job. And this should even include employees of your company who are not family members. Just make sure that you exercise utmost care when determining your family business’s structure.
Practicing Widespread Financial Discipline for a Family Owned Business
The most devastating cases of fraud can occur in family-owned businesses, and the last thing you want to have happened is to be the subject of an IRS audit or an embezzlement incident. To avoid this, you need to exercise financial discipline. Keep a watchful eye over the company credit cards. Make sure that money that is specifically meant to go back into the company isn’t being allocated for personal use. It’s important that not one family member has too much more access to the company finances than any other.
How you deal with revenue generated by the business is significant as well. Of course, you don’t want to be stingy with the finances. All family members deserve their fair share. But some family members, for one reason or another, may think that they are entitled to additional funds, and you want to approach this carefully as well.
Nothing can sink your family business quicker than a good old-fashioned money dispute. Be calculated but fair with how you discuss finances with your family members. You want to be as transparent as possible.
Having a Proper Succession Plan in Place
You cannot run your business forever, and eventually, you will have to hand over the reins to someone else. If you set up some sort of business succession plan early on, you will be able to most effectively choose that ideal business successor.
When looking at a potential successor for a family owned business, you want to make sure that you ultimately choose someone who truly understands the culture of your company. And can most successfully handle the day-to-day business operations. You will want to set up a training program. It is for prospective successors that you yourself monitor so that you can track their progress. Also, having a succession timetable is recommended to best streamline the process.
In the event that the most qualified candidate is an employee who is not a family member, this can create a world of problems. If you are having trouble objectively picking the ideal successor for the company, it may be a good idea to rely on a board of directors, an outside search committee, or any other third party advisor to help you make your decision. An unbiased perspective may be what you need to pick the right person for the job.
Ultimately, Communication and Conflict Resolution Is Key
To avoid any pitfalls of developing and growing a family owned business, exercising effective communication and conflict resolution strategies is vital. Make any involved family members feel like they are part of the growth process. Do not exclude anyone when the company triumphs or unnecessarily single anyone out if there is a problem.
Running a business with your family can be a rewarding experience. There’s a reason why so many business owners do it. But staying attentive and vigilant throughout the entire process is necessary to achieve ultimate success and profitability.
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