If the idea of building a business that you can pass on to future generations is appealing, this article is for you. There are many reasons to build a family business, including working with your children, other family you know and respect, as well as creating a legacy and building generational wealth. There are certain processes and system you need to have in place in order to give your children the tools to one day run your business.
I reached out to Family Business Expert, Barry Banther, Senior Partner at Banther Consulting Corporation to dig up everything you need to know about running a successful family business. Barry is a leadership development expert and bestselling author who has worked hundreds of large privately held companies on developing generational leadership. He also works with Fortune 100 companies to develop leadership training programs. Oh, and: he runs a successful family business!
Challenges and Obstacles in the Family-Run Business
It’s no surprise that problems can easily arise when you’re working in close proximity to people you love. It can be difficult to draw the line between professional and personal relationships, and that can seriously impact your relationships with family members. It’s important to delineate between the two. Barry offers this advice, “Only discuss work at work, and table work-related conversations once you’re in a social setting with family members.”
Communication is essential for the success of your family business. Not expressing something that’s bothering you will only make it fester, and eventually it will come out in a counterproductive way. “Family businesses fail most often because of an inability of family members to communicate and work together constructively,” he says.
Not having clearly-defined roles can create confusion and chaos. Rather than everyone just pitching in, Barry encourages business owners to have defined roles (sales, manager, owner, et cetera) so that everyone is clear on his or her job within the company. Everyone should have a job description and clearly defined performance goals for their position. Pay each family member a salary rather than letting them take from the till. And he gave a specific warning to avoid giving family members positions simply because they’re related to you. “Being a family member gives you the benefit of being able to apply early for a job, but once hired, your performance expectations must be just like everyone else and any promotion based on results and not DNA,” he says.
Each family member should have a success plan that encourages them to achieve their highest potential, and it should be one that is based on sustainable high performance over a period of time. You also want to develop this plan with them to gage who might be interested in running the business some day.
Tips to Ensure Your Business Outlives You
While you might want to encourage your kids (while they’re young) to want to take over your business, that might not be the best path for them or the business. Some families require children of the owners to go to college and work for someone else at least two years before coming back to work for the family business. Barry suggests that you should encourage your children to discover their own talents and skills, and then give them the resources to help them succeed. If those skills lead them back to the family business, great. If not, don’t force it.
He warns, “Enticing or requiring family members to take over the family business only breeds resentment.” It can also hurt the morale of your existing long-term employees who may be far more qualified to run the business. Maybe you have a brother, an uncle, or a distant cousin who would be a great addition to your team. if you truly want your business to succeed, only bring on those who have skillsets that will make your company better.
Think Through Estate Planning Carefully
Barry also discourages business owners from leaving their children a business in their estate unless they’re sure they will want to take it over, because that will almost always ensure business failure. If your kids suddenly inherit a financially viable business that they did not build and are not interested in, they won’t be able to run it. In addition to grieving the loss of a parent, they will consider the business a burden and they might attempt to run it out of obligation (especially if their surviving parent is depending on the income from it) or move to sell it. Barry offers a better approach to passing down a business, “Create an environment where your children can earn ownership through sweat equity or a cash investment. What we earn we value, and what we value we grow and protect,” he says.
If your family business grows to a significant size how you structure your business becomes very important. He suggests having a governing board comprised of representative shareholders and highly qualified outside directors. This model ensures shareholders have a voice but they also have the advice of very capable non-family members. The balance between family and non-family influence will serve as a system of checks and balances.
It’s Worth the Hard Work
Barry stresses that family businesses are difficult to run and sustain, given the nature of human relationships. “We have a plaque in our office that states, ‘All families are normal until you get to know them. Including ours!’ If you go through life expecting perfection or nothing, the results are predetermined. A family business can be rewarding personally, professionally, and financially, but it requires diligent work on your part.”
It comes as no surprise that you have you plan for success. If running a family business is one of your company’s goals, let it go. It’s not for everyone. But if you and your family are willing to put in the effort to effectively communicate and set up boundaries and expectations, your business could thrive for generations to come.
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