With the changing of the guard that is forecast for family businesses over the next ten years, here is a concise list of tips to help guide towards longevity and cohesion:
1. Embrace the Intangibles
A family business is the embodiment of a family’s values and culture. These are the intangibles that make a family business unique. Communication between family members is imperative. Talk, talk, and then talk some more until you have defined the family mission statement and a history of the company for all stakeholders in future years.
2. Define and Separate Your Roles
In most businesses the roles – owners, directors, employees – are clearly defined. Not so in the family-owned business, where these roles are blurred and board meetings can sometimes take place around the dinner table. This definition and separation of roles is an important and progressive step for a family business to take.
3. Integrate Business Strategy, Succession & Investment
A lack of communication among a family businesses advisers can genuinely inhibit growth. The result can be decisions which individually make sense, but collectively do not result in maximum effectiveness. To grow effectively and efficiently you should have one single advisor who is a family business expert. An advisor who ensures that a decision (whether it be regarding accounting, succession, tax, funding, or whatever) is made with total reference to all other decisions to achieve maximum overall effectiveness for the business.
4. Consider a Board
A formal board can direct strategy, major decision making, hiring and compensation of managers, taking these potentially emotionally charged decisions and creating a framework to deal with them fairly and rationally. Often the first step in this process in a growing family business is putting in place an advisory board. An advisory Board should compose of experts in their field who can provide a source of ideas and act as a sounding board to the business managers. Keep the numbers small and the meetings regular and most family businesses will find this an invaluable management tool.
5. Earn Your Voice
It is important to separate membership in the family, a birthright, with involvement in the family business, which needs to be earned. There are many known examples of how Australian family owned businesses manage this process: some state you must work outside the family business for a prescribed period of time before you can work in the family business, others state the family members must reach management level outside prior to coming back in. Each family business differs and the decision is unique to each circumstance but a level playing field is the outcome.
6. Honesty is a Policy
In our experience with family businesses, as difficult as it may seem, honesty is the first and last policy. If you want to beat the odds and make your family business an ongoing legacy for generations to come, then you need to admit that what may have worked in the past may not be good enough for the future.
7. Keep the Dialogue Going
Develop a system of communication and accountability that ensures all this hard work has a lasting effect. Put structured communications in place – quarterly understandable financial reports and an annual meeting – so owners get formal updates from managers (hopefully away from the dinner table). Then implement this process at a family level with formalised regular family meetings and in the longer term consider a Family Council. Keeping that family dialogue going, keeping family members active and involved will only enhance the performance of the business and the satisfaction of the family members.
If you are looking for help with your family business, please don’t hesitate to call us at FINH on 3229 7333.