There are over two million businesses in Australia and over 70 per cent of these businesses are family owned and operated. Less than five per cent of all businesses are franchised business.
Franchised businesses tend to be smaller employers and because of the structured nature of the business models they are less dependent on the support of family, not to say that this doesn’t exist but in larger and non-franchise businesses there is a greater incidence of family involvement. There are significant benefits and some potential downfalls associated with family business operations. For most families, spending time together is both enjoyable and fulfilling. Closely tied families share the rewards of loyalty, love, affection, acceptance, and understand – often in unspoken terms – a sense of commitment to one another. Thus, the family business concept has long appeared an attractive proposition.
Worldwide, some of the most successful companies are family-owned and operated – many of them household names. Yet while the family business sector is indeed flourishing, many people in the business community are unaware of the unique challenges that family businesses face. When properly addressed, these hurdles can be successfully navigated. Left to chance, they often spell doom for the hard-working family.
If you work or have worked in a family business, you know the many advantages. These include flexible working hours, dedicated employees, open communication and procedures and working closely with those you treasure most. The irony of family business, however, is that the same elements which contribute to strong family ties – such as leadership roles, varying personalities and spending time together – often become disabling burdens. Emotions Versus Objectives – The Operational Tug of War, the key issues of family businesses are similar to those of any closely tied organisation. However, these particular issues become more sensitive and difficult to deal with in a familyowned business environment because of how they are integrated with the family system as a whole.
Family businesses encompass traditional business objectives and intricate affairs of family relationships. When family members work together, emotions may interfere with business decisions. Issues may arise as relatives see the business from different perspectives. Those engaged in daily operations are more likely to be concerned about production and output, as opposed to those family members acting as “silent” partners who would naturally be more concerned about the bottom line.
Challenges also arise when non-family employees enter the picture. Competition among family members such as adequate compensation and job titles can also be ongoing issues. Family businesses are constantly forced to confront the difference between decisions that are made in the best interest of the family versus the best interest of the business.
In a recent survey conducted by KPMG It was reported that up to 80 per cent of family businesses had some form of conflict in the past 12 months. The main sources of this conflict were:
1. Vision, Goals and Strategy – being misaligned between key family members;
2. Balancing the needs of the family members against the needs of the business; and
3. Communication between family members particularly when conflict or disagreement arises.
This is not the only potential issue of conflict that can occur in a family run business, it’s true that in some family businesses nepotism is in play and this can equally destroy the harmony and culture of a business. In order to deal with these potential issues, there are steps that should be taken to minimise the risk and ensure a workable and productive business environment and culture.
Creating and Sharing Personal Vision Statements
Personal Vision Statements will become the foundation for the personal plans that Family Member Employees (FME) use to synergistically work together and lead the business forward. Have individuals complete a personal vision and share this amongst the family to see who is aligned and what is important to each party
Hiring and Firing Family Member Employees
It’s very hard to leave the family relationship at the door when you come to the business in the morning. You need to establish ground rules for acceptable behaviour and performance management and measurement.
Compensating Family Member Employees
FME compensation tends to follow a different set of rules than non-FME compensation. This can cause issues with family members and nonfamily members, so ensure that you have a fair and market range that is commensurate with the broader business community.
Selecting the Family Member Successor
Use the same criteria that you would in any organisation for promoting the leader of an organisation. If you want it to be a family member, ensure they have the training to do the job well.
Addressing Spousal Partner Challenges
There are some real dangers for spouses in this area. It can be very difficult to maintain a healthy marriage and relationship. You need to implement rules for both your marriage and business.
Recruiting, Retaining, and Inspiring Non-Family Member Employees in a Family Business
Clearly, family matters have a significant impact on non-family member employees and must stay out of the business. Ensure you run the business the way non-family member businesses would, or if you have differences, explain this to incoming team members so they understand the culture of your business.
Transitioning Ownership to Family Members
Preparing your business for transition in ownership is a long process. You need to take time to ensure proper communication, planning and timing.
The success of any family business is to leverage the successful principles employed by non-family businesses whilst still delivering the vision that the business owner and family has for their personal lives, after all business is just the vehicle to deliver the life that we all want to live.
Three critical tactics that a family owned business should consider are:
1. Have an internal Board structure. In Australia only 52 per cent of family businesses have the rigour and discipline of a formal board structure.
2. The alternative is an advisory board, currently only 28 per cent of family businesses have an advisory board.
3. Only 43 per cent have a shareholder’s agreement. You need this in place in the event that things don’t go well.
Family owned businesses face many challenges. The demands of a successful business often affect family life and family concerns frequently have an impact on the life of the business. Whether your family business will be successful for generations to come or one of the many that fail to survive will likely fall upon what you do to balance family emotions with business objectives and how effectively you manage the conflict that comes with both. Accept that there may be rocky times in a complex family business relationship and take the necessary steps to ensure conflicts are warded off before becoming detrimental. Family businesses are powerful, yet delicate operating units that can realise long-term benefits from outside assistance to reduce the effects of operating in an environment of emotions vs. objectives. The use of business owner advisory groups and family business coaching can provide the tools to help understand, accept, resolve sticky family business issues, and continue moving the family business forward to meet individual and business goals. Although using these elements in managing the family/business interface will not guarantee business, family, or individual success, they will aid in developing effective management techniques and reduce the risks and stresses associated with operating a family business.