How to grow a family business
The following are some lessons from experienced people who have worked with large and small family owned companies. They are points that will help the family business to grow without a lot of infighting.
- Make sure that a succession plan has been developed and is in place.
- Be clear on the roles the children will play in the business.
- Don’t try and wear too many hats.
- Manage conflicts quickly and gently.
- Establish clear boundaries and separation between work life and home life.
- If in doubt, outsource.
- Agree in advance on how profits are to be distributed.
- Settle the leadership roles and how leadership can be rewarded.
- Set an example.
Successful family meetings
One of the best ways to keep family members involved in the business is to have regular business meetings. Family meetings should be distinguished from business meetings where the managers of the business discuss the operations and directions of the business. Family meetings should be designed to build trust between members, so that hard decisions can be made and everyone involved agrees. Communication and keeping family members informed is very important because things are easier if they are brought out and discussed in the open.
Some guidelines you can use for family meetings involve:
- Include everyone.
If possible, also involve the children so they feel part of what is happening, even if they don’t understand it. Any complaints can be ironed out at these meetings.
- Take your time.
Family members may require time to embrace some of the vision or dreams you have (as the motivator in the business) so you will need to be a little patient.
- Set down rules.
Make sure that family meetings don’t become “moaning sessions”. The only way to do this is to set some ground rules so that everyone knows why they are coming together and the procedures that need to be followed.
- Don’t lose the vision.
See if the family members can focus on the vision of the business. If your goal is to provide enough money to buy a new home as well as arrange a holiday trip, or similar, then as everyone becomes involved and knows the direction you are going, things will become easier because of the communication.
How much money each child gets
The amount of money you pay to your family members or the amounts involved when dividing profits can cause problems within a family. You will always have family members who feel they are underpaid for the knowledge, experience and effort they put into the business.
It’s always difficult to know how to handle this, simply because you love every member of the family and don’t want to isolate or cause any friction between them.
Some suggestions could include:
- Match the salaries to market guidelines. Find out what salaries should be paid from employment consultants and set the salaries based on that. The family members involved can then only have an argument with the market, rather than with you.
- If family members have put in unequal contributions, restructure the business in such a way that extra shares can be provided to recognise those contributions.
- You can also bring in fringe benefits, such as car use or allowances etc, to establish a fairer equity between family members. Family members also have to realise that just because the business makes x number of dollars profit, it does not mean that those profits will be split equally and paid out of the business.
Compensation should be at market value for family members
One of the big problems when operating a family business is separating the family from the business.
Many family members complain about not being properly compensated. Let them know that what they were receiving was per the market. You will need to address this issue and make it clear to each family member.
- The effect on family members.
When compensation is based on each person’s performance, there is no better way to advance productivity than this type of incentive. This will apply whether the member is family or not. It is not a good idea to pay family members based on a flat remuneration because there can be a tendency for each one to rest on their laurels and not put the necessary effort to grow the business. The business will suffer if family members fail to perform, simply because they feel that the business owes them something, and that they are doing the business a favour by taking lower earnings than what they would be able to command elsewhere.
- The effect on non-family members.
The effect of market value compensation for people who are family is also very real. Non-family members will feel that they are not on an even playing field and will probably feel they are not part of the team. This makes them feel inferior and unhappy, resulting in less productivity, a complaining attitude and eventually will lead to them leaving the business.
Making loans to the family
It’s not a very good idea to borrow from or lend to family members. Shakespeare once said, “Neither a borrower or lender be for a loan oft loses both itself and friend.” Many people feel that trouble will be the result if they lend money to people who are close to them. The danger is that it can create family conflict and disappointment, as well as family jealousies. Loans to family members can be a confirmation of the trust in that member, but it can also lead to distrust and alienation and jealousies with other members. There is no easy way out of this problem and there is no quick answer. Perhaps the important thing to consider is that before a loan is made all potential issues are closely examined.
Politics when working with relatives
Relatives in a family business can help the company flourish on the one hand and can bring the business down on the other. When you hire a relative, make sure rules are set in place that clearly communicate how that relative is expected to act. These guidelines will depend of course on the family’s philosophy and there must be guidelines agreed to by the main members of the family, especially those involved in the business.
Some of the rules should include:
- The circumstances when a relative can enter the business?
- Do they need to be a certain age before employment?
- Do they have to wait until a vacancy arises, or can a position be created for them?
- What minimum experience in education will be required?
- Will they need to retire when they reach a certain age?
- Will they be allowed to work part time?
- If they leave for a period to undertake study or go overseas, etc, will they be permitted to re-enter the business.
It’s better to have some rules than no rules at all. Most people would like to know how they stood and then they can make their own decisions based on that.
Staff problems from non–members
A challenge that the family owned business has is the high turnover among people who are very experienced and qualified, but are not members of the family. Some relatives can resent outside people coming into the business, even if they are qualified and clearly the best people for the job. Some relatives even become nasty and are unpleasant to them. As a result, many excellent managers and staff leave the firm because of the treatment received from family members.
It’s a good idea to counsel employees not to take sides in a family dispute. They need to be assured that fairness will be a priority when dealing with all staff. In fact, having outside employees “in the mix” can bring stability to the business because they can see things in a different light from family members. This means a family business needs these people and they should to be assured of a good future with the firm.
If you find that there is a relative causing trouble in the business and it is difficult to get rid of them, consider some of the following alternatives:
- Ask the family member to improve and set an example.
- Transfer the family member to another branch.
- Encourage the family member to start up their own business if they are not happy with how things are run.
- Find the family member a job with another associated company or firm in the industry.