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FAMILY BUSINESS MANAGEMENT: The Good, Bad & Ugly On Family Businesses

Introduction

Family-owned businesses have unique strengths, and they also face unique challenges. Small and medium-sized enterprises (SMEs) make up the majority of firms in both developed and developing nations. They are usually owned and managed by family members. These businesses contribute significantly to economic development, wealth creation, and employment in most emerging economies.

Though family businesses are a critical component of the economies of most countries, only a few family businesses survive from the founding generation to the next. The failure rate is so high that less than 30 percent of family businesses survive to the second generation, while fewer than 10 percent of such businesses survive to the third generation. 

Several factors could account for the high failure rates of family businesses. They may include interpersonal dynamics, failure in leadership succession, compensation, and the management performance often become messy, uncomfortable, and emotionally fraught.

The most successful family businesses have a good balance between responsible business ownership, professional management, and a healthy family dynamic. And this is where family business management comes to play. It is critical due to the increased rate of emotions and misunderstanding.

This post will take you through some key issues that may arise from family-owned businesses and how to handle them successfully. Be informed that this article is only a general guide to family business management. I will suggest you seek appropriate professional advice on your particular circumstances before taking any action. 

First, let’s consider some key issues that may arise from family businesses.

KEY ISSUES THAT FAMILY-OWNED BUSINESSES MAY FACE

Family businesses face several challenges just like their counterparts in other parts of the world. But they face some key challenges that impact their operations and sustainability. These include the selection and preparation of a successor, inflexibility among family members, Excessive nepotism, the largely unstable socio-political/governance issues, critical infrastructure deficiencies, and the dynamics of the usually large family membership as a result of polygamy and the culture of the extended family system.

Other common problems that occur in a family-owned business include:

  • Arguments over daily operations
  • Disagreements on how to divide and use the company’s profits
  • High turnover rate among non-family employees

These problems, along with others like them, are like potholes in the road. They often kill a family business. Any company, whether it is family-owned or not, should be run as a serious enterprise rather than leisure. 

NATURE OF FAMILY BUSINESS MANAGEMENT

Family business management is aimed at family-own businesses that want to maintain, expand, and grow their operations. It helps to minimize inner fighting and bickering among family members and makes for a more profitable and long-term family business.

Family business management helps understand how to build upon the strengths, overcome various challenges, and protect against the weaknesses of businesses and the owner’s families. It helps to assess the state of family businesses and set goals for expanding them. 

How To Successfully Manage A Family Business

Managing a family business is not a simple task. If you have been put in charge of a family-owned business and want to avoid failure, I’ve carefully outlined some tips below to help things go smoothly.

1. Develop a family business plan

Create a strong family business plan that describes the company’s current situation and its future goals. Put all of these facts on paper and discuss them with the family members who will eventually take over the firm. The business plan should be reviewed and modified frequently. This plan will ease stress and pressure on management personnel if family members do not go by the policies, rules, and laws. Similar to this, people who decide to procrastinate and don’t perform their fair portion of the work will effectively receive a written reprimand or warning.

2. Create a culture of open communication

All family members will develop trust and cooperation when you develop an environment of open communication. Additionally, it helps with the transition as the company is handed off to the next group of management.

3. Clearly define job roles within the business

Create written job descriptions that outline requirements and obligations for every position in the company. Maintain those standards for all employees, including family members. This provides a high standard of quality and a fair working environment for all employees.

4. Establish work and home boundaries 

Avoid discussing work at home. There should be a clear distinction between roles and responsibilities at work and home. Family ties and interests should take priority at home, while the success of the business should come first at the office. Exclusively deal with work-related issues when you are at work and family issues when at home. You may avoid many issues and keep yourself sane by upholding those crucial boundaries.

5. Managing The Business

If a member of the family is in charge of operations, they should be able to negotiate with other family members to decide what is best for the company. In some circumstances, appointing a manager who is not a family member will help you establish more impartial control and monitoring in a family-owned business. Both alternatives should clearly define the roles and obligations of every employee, including family members, as well as the manager’s power to suspend or fire any employee who disobeys business policies. While fairness is very crucial in a family-owned business, management may become ineffective if special allowances are granted.

6. No preferential treatment

It’s in our nature to feel sympathy for our family members. After all, you are familiar with them and understand their emotions. But having more empathy could cause issues at work. Making rational and wise business decisions may be more challenging as a result of the intimate family knowledge. This is because you might be more likely to judge related employees more leniently than unrelated employees. You could be tempted to excuse a cousin’s tardiness because you are aware of his recent tough separation. However, treating family members differently or more favorably can result in issues.

7. There shouldn’t be any special privileges

Family members occasionally cross the line. They might believe it is OK to request specialized services or use business resources. For instance, it is unreasonable to demand special treatment for family workers from non-related employees. They weren’t employed by you to be a private servant to your partner, parents, or kids. They were hired to work for your business. The practice of blending personal family demands with professional resources is very unprofessional behavior. It consumes time and money from the business.

8. Hiring Family Members

The pressure to hire a family member is one of the most prevalent problems in a family business. It might be challenging to say no because family relationships can be emotionally charged. Make an effort to base your choice on what is best for the company rather than personal feelings. If you do recruit a family member, it shouldn’t have an impact on your connection with the other employees. Hold family members to the same standards as independent contractors.

9. Planning for Succession

Planning for succession is a crucial factor to take into account for every family-owned firm. The relative currently at the top may be deeply resistant to the notion of being replaced – and vocal about it. If the issue of succession is not addressed, it can lead to inappropriate leadership choices that threaten the business. With a solid succession plan, you can steer your company through a change in management and reduce conflict.

10. Dividing Profits

It can be challenging to pay family members and distribute revenues among them. Many people think they are underpaid. But what can you do if your family doesn’t agree with your profit-sharing arrangement?

If the company is a small corporation, certain equalizing variables may be achieved by stock dividends or corporate recapitalization.

Paying competitive compensation is another way to guarantee fair profit allocation. Profit sharing may also be done through benefits including pension schemes, insurance policies, and deferred profit sharing arrangements. Offering rewards can make family members happy and aid in the development of their assets. You might want to think about putting your technique for allocating your company’s profits in writing in a formal agreement once you’ve made your decision.

11. Employee Turnover

Many family-owned businesses struggle with high turnover among their non-family workers. An exit interview allows departing workers to discuss their reasons for leaving, which can assist you in understanding why turnover happens. When you are aware of the variables influencing turnover, you may take action to address them. Remember that treating your family business like a business is essential to its success.

12. Seek External Help

To handle the financial parts of the business, hire an accountant or financial advisor from outside the family. This provides unbiased guidance that will aid the business’s ability to make wise financial decisions.

Final thought

The attitude of the family member(s) working in the firm is the first step toward its success. Just like they would if they were clocking in at an outside organization, they must understand the business and fully commit themselves to it.

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