Being too comfortable in a family business can be a problem. Family companies more than others need to take steps in order to remain competitive. If you feel your family enterprise is in danger of complacency, you need to read this article. – David Harland – Managing Director
Competitive pressures and rising costs are forcing many Australian business leaders to realize that it’s time to take their businesses to the next level. A recent PWC study found that 40 percent of family businesses (globally) believe that professionalising the business will be a key challenge over the next five years.
A 2012 KPMG survey of European family businesses found that 80 percent intended to bring in non-family executives and directors in order to keep the firm competitive in a challenging world.This need to modernise is a key shift for family businesses who now realise that they can hire the professional experience and skills needed to run a competitive business while keeping financial and strategic control of the business within the family.
Professionalising your business typically involves incorporating the systems and structures of a competitive company while keeping the unique culture and family values your firm was founded upon. The process is designed to make the firm more profitable, growth-oriented, and competitive. It also often requires separating family ownership from the management of the business so that the business can thrive while family members still enjoy financial benefits and control.
Usually, professionalisation includes some or all of the following: the creation of formal legal and financial structures to separate family ownership, the institution of family governance systems, identification of competitive obstacles and defining gaps in knowledge and experience, the establishment of training and succession plans for family employees, and other structures unique to a business’ needs.
Ultimately, the goal of a professionalisation plan ought to be:
- Giving the entrepreneur’s vision structure and setting the stage for future growth.
- Allowing the family firm to grow more rapidly.
- Attracting higher quality employees and giving family members the professional education they need to manage effectively.
- Assisting the firm in preparing for valuation or the search for capital from private equity, patient capital, or traditional lenders.
- Planning for succession.
There are a few key signs that you may recognize in your own business that indicate it’s time to professionalise the business:
- A need for external capital to navigate a liquidity event or grow the business.
- A founder or business leader with little or no time for strategic planning or thinking about the business’ future.
- Lingering family issues that impede business growth.
- A high turnover rate among non-family employees.
If these seem like issues facing your business, then there are a few initial steps that you can take to jumpstart the professionalisation process.
Bring together the key stakeholders of your business for a strategizing and brainstorming session.
- Discuss the group’s vision for the future. As the business leader, restrain yourself from dominating the conversation and focus on listening deeply to what the others who care about the business say.
- Consider the threats and obstacles that stand in the way of achieving your vision.
- Discuss what steps can be taken to address these issues and overcome them.
As a family business advisor, I’m obviously biased toward consulting outside advisors when taking on a project that’s so fundamental to the future of your business. There’s no one-size-fits-all plan for professionalising a family firm; all firms have unique circumstances, obstacles, and growth opportunities that inform a professionalisation plan. However, we have developed a professionalisation process that we use to help clients understand their competitive landscape, identify obstacles to growth, and develop a strategy to address their issues and achieve their growth objectives.
Bottom line: professionalising your business will force you to confront hard truths about your business. Embrace the change; the future of your business may well depend upon it.
Want to professionalise your business? Call FINH and speak to David on 07 3229 7333