Did you know that family-owned businesses account for an estimated 60-percent of total U.S. employment, 68-percent of all new jobs and 65-percent of wages paid? If you are involved in a family-owned business, you know it is not always easy to survive. According to The Boston Globe, only 40-percent of family-owned businesses survive to the second generation, 12-percent to the third, and 3-percent to the fourth. That’s an unsettling fact, given that family-run businesses are the backbone of America’s economy.
From my experience working with hundreds of family-run businesses, there are actions you can take to increase your chances of long-term prosperity and success.
Effective communication is the key to keeping a family business on the right track. We have found that a formal communication process works best because it keeps everything professional and consistent. This is accomplished through shareholder meetings to review financial performance and any other strategic business or family challenges. These meetings should be held at least quarterly, if not on a monthly basis.
It is crucial to keep family challenges out of the day-to-day operations of your business. It is also important to keep these issues from ruining a family function. When a formal process is followed, all family members know the guidelines and expectations. Be sure to have a communication plan that defines the dos and don’ts for family communication in the business setting. For example, one common rule of thumb is to call family members in the business by their first name versus Mom or Dad. This keeps the work environment more professional and comfortable for non-family members. An effective communication plan creates a process to address all issues, even the real sensitive topics. Rumors and side bar discussions create mistrust and burn through resources that should be focused on resolving the real issues.
An agreed-upon business plan is another key to a smoothly-running family business. Through a business plan, all stakeholders understand and agree on where the business is going and it provides them a benchmark to objectively monitor company performance. The monthly shareholder meetings provide clarity on where the company is at and how it’s performing against the plan. They also allow the opportunity to agree on necessary adjustments that need to be made. A business plan is the best way to unify your leadership team of family and non-family members.
Outside of ineffective communication, lack of role clarity is often one of the greatest issues faced by family businesses. Early on in the growth of the company, family members typically take on any roles that are needed for success. As a result, over time the family members and other employees do not clearly understand their specific job responsibilities. Who exactly does what becomes kind of gray and confusing over time. Lack of role clarity creates significant issues, most importantly lack of accountability. A clear organizational structure and job descriptions across the organization are critical to role clarity.
Every family member who works in the business should be in a position where they can bring the greatest value to the company and themselves. Just because a person’s last name matches the name on the building doesn’t mean they have the skills to lead the company. Their position must match his/her skills, gifts, education and experience. An under-performing family member because of skill set misalignment is a common problem SM Advisors is called in to resolve in many companies. Businesses that understand that each family member has to be in a position that they can bring the greatest value to the company usually have less family issues and achieve a higher level of organizational success.
An outside director or advisor can help immensely in raising the bar for professionalism and respect at family meetings. An advisor can help minimize or manage the emotions that come with family businesses. The most functional and successful family businesses are those that have an engaged group of advisors working together in the best interest of that company and the family.
I have seen family businesses destroyed because of family conflict and mismanagement. However, I have also seen family businesses create wealth and joy for generations. Take steps now to ensure a prosperous future for your business, and more importantly, your family. Remember — Those Who Plan PROFIT!