Family businesses have always been a force in the U.S, but you may not have realized the degree of impact these companies have on the economy. According to PeakFamilyBusiness.com:
- Approximately 90% of U.S. businesses – more than 17 million – are owned or controlled by families. They come in all sizes, from the proverbial “mom-n-pop” corner store to billion-dollar industry giants like Ford, Anheuser-Busch, Walmart and Levi Strauss.
- Family businesses employ more than 60% of the U.S. workforce.
- Family businesses are responsible for 64% of the U.S. gross domestic product.
- 35% of the companies in the S&P 500 are under family control.
So the odds are, you own a family business, you work for a family business, or some of your vendors or customers are attached to a family business. Who knew?
Despite their overwhelming presence, family businesses come with their particular problems and challenges that don’t necessarily concern managers at companies with other ownership structures. Special concerns for family-owned firms include matters pertaining to succession planning, division of labor, and keeping sibling egos in check.
Expert advice should always be sought for complex legal, strategic, and personnel issues, but here are “Ten Commandments” that any family business should keep in mind.
- It’s a Business First. You’re there to ensure your company grows and prospers, to provide value for your customers, and to create a comfortable lifestyle for yourself. Nine to five, at least, you need to forget about being an overly-involved parent, marriage counselor, or referee. A half-hour spent resolving a family feud is a half-hour which could have been spent with a customer. Save the drama for the Thanksgiving dinner table.
- Start Succession Planning Early. PeakFamilyBusiness.com reports that 47% of the companies surveyed had no succession plan in place. You owe it to yourself and your heirs to figure out what will eventually happen to the business. Who takes over? Under what conditions? What about compensating children and grandchildren not directly involved with the company? And if the next generation has no interest in continuing the enterprise, then so be it. But if your business is a valuable, going concern, start exploring options outside the family structure.
- Get Competent Legal Advice. The emphasis here is on “competent.” There are lawyers that specialize in the issues that typically confront family-controlled companies. Find one. (Bonus: If a squabble erupts between family members over some financial, operational, or logistical matter and it’s hurting productivity, you can always break the stalemate by saying, “the lawyer said we need to do it this way.”)
- Establish Clear Job Descriptions and Functions. This is vital in any business, but in a family situation various players are more apt to encroach on someone else’s turf when clearly defined roles aren’t in place. Besides, carefully thought-out job descriptions ensure that all vital areas of the business are given appropriate attention.
- Insist on Formal Budgeting and Financial Planning. See #1. It’s a business, not a family piggy bank. And it’s probably wise to have a non-family member watching the books and working directly with your accounting firm. Better safe than sorry.
- Place Non-Family Members in Key Roles. There are two reasons for this. First, a non-family member brings a fresh perspective and less emotional approach to the job. Second, some business owners are unable to hold family members to the same standards that they would outsiders, and the lower expectations might eventually hurt the company’s performance. It is vital that some members of the management team are from outside the family.
- Establish Employee Performance Measures. Get outside help if you need it, but it’s important that you establish appropriate methods for judging each employee’s job performance. This helps hold employees accountable and will temper suspicions of favoritism from non-family workers.
- Encourage Creativity. Particularly in businesses that have been around for more than two generations, there’s constant danger of complacency and falling back on “we’ve always done it that way” kind of thinking. The global marketplace is changing faster than ever. Rigid thinking puts you in danger of missing new opportunities, or worse, losing ground to your competitors. If possible, hold monthly brainstorming sessions to encourage “outside the box” thinking.
- Keep Egos in Check. Sibling rivalry is bad enough when they’re six years old and playing in the sandbox. Keeping lines of responsibility and authority clearly drawn helps. So does adhering to the old advice, “praise publicly and criticize privately.” In situations where relatives are extremely at odds, having them work from separate locations can help alleviate the tension, but make sure all the parties have equal and regular access to management.
- Think Long-Term. Get family members involved in planning the future of the business. Make sure key relatives understand the opportunities available to the company and support the strategies for making it successful.
Whether your business is family owned, or arranged under some other structure, MP Star Financial’s invoice factoring services can help ensure you have cash flow needed to run it effectively. Call MP Star Financial for more information at (800) 833-3765, extension 150.