Family businesses have potential strengths that many non-family businesses lack. At their best, family bonds can be a powerful force to keep talented entrepreneurs, executives and employees dedicated to the long-term success of the business.
A family that values its reputation will likely place a strong emphasis on ethical business practices, customer satisfaction and good relationships with employees. Close ties between family members can help to resolve business differences, work through conflicts and find common ground.
The Benefits of Family Business Operations
Family companies that hope to perpetuate themselves over multiple generations have a lengthy time horizon, which can lead them to make longer-term investments than a business that plans to exit in the near future.
Another advantage: family companies tend to develop roots in their communities and ties with their customers. They have the opportunity to be perceived as outstanding citizens and contributors to their communities, not just another business. The motivation to keep the family legacy going often provides the principals of family companies with extra fortitude to sustain the business through hard times by making tough decisions.
The “prize” for a well-run family company: rising income and asset appreciation for successive generations, while maintaining the family’s name and values. The key is to create a structure that fits the family’s preferences and the realities of running a business in a very competitive economy. Setting up well-defined governance and decision making can help to strengthen safety and prosperity for future generations.
The Structure of a Strong Family Business
Family businesses are easier to run when they are small. Families today are often more complicated than they once were. The number of stakeholders is greater, considering factors like divorce and remarriage. Issues arise as the company grows, more family members become involved, and outside stakeholders and shareholders want their voices heard. Family businesses often have intimate histories and complex cultures that are hard for outsiders to understand.
Especially as the company is passed down generation to generation, it’s easy for family members, especially those not directly involved, to feel slighted or left out of the decision-making process. By having a smart, well-organized structure in place before this happens, it is possible to ensure all three branches of the company are heard equally.
Current Problem: Lack of a Succession Plan for Family Business
Nearly 40% of family business owners expect to retire between now and 2017. Only half of those individuals have a clear plan for succession (Mass Mutual American Family Business Survey, 2007), while a third of all family business owners have no plan in place in the event of their unexpected death. This lack of planning can create serious problems.
In short, for a family business to truly succeed in an increasingly complex and competitive business environment, the owner and his or her family need a plan - one that takes into account well-established best practices in succession, organizational structure, and governance. In my next article I will explain these best practices in some detail.
Looking for ways to further increase the value of your family business? Download the complimentary ebook from Newport Board Group, "3 Step Strategy to Improve Your Profitability".
About the Author
Brian Kinahan’s specialty is increasing the valuation of a business before it’s sold. He brings 35 years of C-level experience in middle market companies including 10 years as permanent Chairman, CEO or COO, plus 10 years assisting CEOs of distressed businesses and another 10 years helping CEOs of growing companies generate sustained profitable growth by upgrading business practices to match the demands of a larger enterprise. Contact or learn more about Brian here.
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