Family businesses

By LBV

26 Jan 2010

A recent survey carried out through our website found that over 65 per cent of those working in family businesses thought the sense of camaraderie and loyalty gained by having family members as colleagues gave them an advantage over other firms.

However, it also found that running a family business was putting strain on some individuals because the emotional attachment made some decisions, such as disciplining or making redundancies among family members, difficult and stressful.

Some of the main issues affecting the family business are:

Start up
Deciding to start a family business is a big decision and a number of factors need to be considered:
• The sector - certain businesses lend themselves well to the family business set up, for example the services sector, agricultural business and construction.
• The skill set – does the management team have the knowledge and skills to make it successful?
• The strategy – It is essential to have consistent business aims and objectives.

Integrating other employees into the business
During growth it may be necessary to employ extra workers. Whether family members or non-family members, there needs to be communication procedure in place so all employees are kept up to date with plans and changes.

Remuneration
Issues are accentuated when money is involved and this is especially so when dealing with wages for family and non-family member employees. Family businesses must have a remuneration strategy if they want to avoid disputes. The strategy needs to be consistent, fair, and open and should be reviewed regularly.

How do you fire a family member?
Letting any employee go is difficult, asking a family member to leave even more so. The manager must look at the best interests of the business and not let personal reasons become involved in the decision. The business needs to have an employment policy which describes the conditions under which family members will be employed, and if necessary, dismissed.

Structure
A key issue that affects family-run businesses is the disregard of a management structure. There is a risk one family member dominates, or the head of the family assumes control as the key decision maker, even if they don’t have the right skills or knowledge. It’s essential to ensure a clear reporting and communication structure is in place.

Working 9 to 5
The main difficulty for family businesses is leaving work at work. Personal resentments can often become business resentments which is detrimental to the success of the business. It is essential business issues are only discussed at work and meetings don’t occur at home. This way everyone can see a clear separation between the two.

Managing Conflict
Conflicts can often arise between generations, marital partners and siblings, especially if family members separate or get divorced. Agreements can be put in place, signed and approved by all parties involved, which set out the procedures to be followed when such matters arise. These can be simple documents drafted by a business advisor or legally binding contracts.

The unique benefits
Family members often possess common values and a similar ethos to work, giving a competitive edge in the market place. In times of hardship family members offer support; financial sacrifices and emergency loans, as well as loyalty and determination for the business to succeed. Family businesses also have the ability to take a long-term approach without shareholders pressuring for instant returns.

Passing the business down
Passing the business down to your family might satisfy your desire to create financial security for the next generation, but it may not necessarily provide you with the level of income you would like in retirement. Are the children ready to take on the family business, and do they want to? Being clear about everyone’s expectations before embarking on a handover can make the whole process smoother and avoid unnecessary confrontation and upset.

An outside view
It is vital that a family business has people who can provide an outside, impartial view. It should always appoint professional advisors to look at the bigger picture, help it overcome day-to-day problems, and prevent bad decisions which are made on emotion, not reason.

Ginni Cooper, corporate services director and head of the family business team, Moore and Smalley Chartered Accountants and Business Advisors.
 

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