By David Harland, CPA
Running a family firm can be grinding. Sometimes it's too easy to get caught up working in the business instead of on the business.
A new fiscal year presents family business owners with an annual opportunity to take time to sit with key stakeholders and think about these five issues.
1. Create a succession plan.
Too many family businesses treat succession like a goal instead of an ongoing process. If you haven't started thinking about your succession plans or explicitly identified a successor, you could be setting your business and family up for failure.
Illnesses, unexpected emergencies, and even death can all threaten future success unless you have plans in place. Succession is a critical responsibility and it's important that you start thinking about who will step into key positions when you and your managers aren't around.
If you already have members of the next generation working (or interested in working) within the business, now is the time to start nurturing those leadership and management qualities.
Most successful multigenerational businesses require family members to build experience outside the family business.
They typically do this for two reasons: One, they want to offer their children the freedom to pursue outside opportunities so that they fully appreciate their options. Two, their kids build valuable experience working for other businesses and bring fresh perspectives with them.
2. Clarify hiring and promotion practices.
Family businesses approach hiring in different ways. Some believe that the business is there to serve the family and have an open door for children and relatives who want to work within the firm. Others treat family like any other prospective employee.
In our work as family business advisors we have seen many situations in which unqualified managers contributed to family business failures. It's also not uncommon for family dynamics to affect hiring and promotion.
Take the time to speak with a trusted lawyer about your current asset protection and ownership strategies.
For the sake of the business, we strongly recommend professionalizing your human resources policies by clearly defining work roles and setting expectations for promotion.
One of the main sources of friction between family and nonfamily employees is compensation. If your firm pays or promotes family members unfairly, you may have trouble attracting and retaining qualified employees. Take a look at your current compensation structure and make sure that you are paying and promoting fairly.
3. Get financial agreements in place.
Are your business and family assets protected from third parties?
Many businesses run into financial trouble because of lawsuits, divorces, partnership dissolutions, and other financial disputes. If you don't currently have financial agreements in place that legally protect your assets, you could be leaving family wealth open to claims.
We strongly recommend communicating early and often with family members about expectations around money and family wealth.
Many families experience the stress and financial strain that can appear when a family member gets divorced. If a properly written premarital agreement isn't in place, the divorcing spouse could be entitled to a portion of the firm's assets.
Financial issues can also arise when business partners decide to part ways or creditors come calling. Take the time to speak with a trusted lawyer about your current asset protection and ownership strategies. Waiting could prove costly in terms of financial losses and missed business opportunities.
4. Add family to your branding.
A 2015 global survey of family businesses by Ernst & Young found that 76% of those surveyed explicitly refer to themselves as a family in their business branding.
Other research has shown that family businesses that embrace their identity benefit from customer perceptions of trustworthiness, community orientation, social responsibility, and a long-term perspective.
Consider how well your current branding and marketing materials identify you as a family business and whether you could be making the connection more explicit.
Family business identity can be especially important in markets where primary competitors are corporations or non-local businesses. Take a look at your target audience and competition and think about whether staking out an identity as a family business will make a positive difference.
5. Meet with family to discuss the business.
Most successful multigenerational family businesses meet regularly with family shareholders to discuss the future of the business. Even if you don't have such formal ownership structures, take the time to set up regular meetings with key family members.
One issue we frequently see within family groups is that business issues spill over into family time. Failing to maintain boundaries between personal and business time can lead to burnout or friction within family relationships.
Carving out a dedicated time and place to talk about the business can help you maintain those boundaries and give your key stakeholders space to discuss concerns.
David Harland CPA is managing director of FINH, an organization that specializes in the provision of advice to family groups in business across the Asia-Pacific region.
Article printed with permission from Northeastern University Center for Family Business