At its best, a family business is a vibrant partnership whose values radiate throughout the company.
Unfortunately, family businesses can often be risky enterprises too, especially those that are reactive rather than proactive and rely too much on ‘blood loyalties’.
Let’s look at some smart strategies for starting or buying a business with family members.
Agree on a leadership structure
A business can be a tough test of family bonds so, no matter how strong the loyalties, it’s essential to put an agreement in place that spells out the decision-making process.
While this can just mean how management decisions are made, to be effective it should clearly detail leadership roles and responsibilities.
It should also, for example, determine the criteria that applies to critical appointments and senior promotions at boardroom level.
Professional help will be invaluable at this stage, and family businesses seldom regret consulting independent opinion – especially at the outset when such agreements are more easily secured.
Such action can add an air of transparency and fairness – a distinct advantage if problems arise later.
Agree on a corporate strategy
All companies should plan ahead, but family-run concerns particularly need to set out a clear strategy for investment priorities, remuneration structures and how company profits are distributed.
New family businesses should also discuss the values they wish to promote, a process that usually goes hand in hand with allocating roles to family members according to their talents and dispositions.
The aim should be to develop a strong foundation built on trust, communication and collaborative effort.
Document planning – to minimise conflict
Many families are convinced they don’t need written planning and policies, but these provide a sensible framework for quickly settling disputes.
Rules should be set down covering job descriptions, salary rates, share allocation and business succession, while the procedure for resolving disputes should be carefully drafted.
This sensitive task is often best managed by specialist professionals who will produce a framework everyone can rely on should the worst happen.
Create a meritocracy
It’s corrosive to morale if employees are promoted to positions on the basis of kinship rather than talent.
Family businesses should be keenly aware of this danger and strive to create a workplace environment which recognises, and nurtures, the aspirations of every worker.
Appointing independent directors can head off accusations of nepotism and bring impartial, fresh insight to the business. It also sends an important internal and external message about professional values.
Build on family values
Kelly Toppazzini, joint family owner of Canada-based Topper’s Pizza, believes a family business can boast a special ambience that gives it a real competitive advantage.
Speaking to Entrepeneur.com she said: “The continuous level of care that a family brings to the business really affects your sales in a positive way. Family members will always take care of the customers, which creates loyalty from customers, which in turn increases our sales overall.”
And Jeremy Miller, a wealth planning strategist at Wells Fargo, also notes that working together can cement family unity:
‘It bonds the family and creates a common purpose [because] it allows the family to spend time together, which would otherwise not happen,” he told Business Insider.
Remain a hands-on presence
Family businesses are wise to exploit these virtues wherever possible. Family members should maintain a high profile, both internally and externally, instilling company values into employees and promoting them through marketing and interactions with customers.
Family-owned businesses are usually very conscious of the need to build for the future. However, preparing the next generation for leadership roles must consider not only the emotionally-charged issue of who precisely should benefit, but also involve a strategy for transferring assets in a tax-efficient manner.
Succession planning requires a clear-headed, long-term perspective. Once again, this is a moment when families will need professional planning to draft a sensible plan.
By Adam Turnbull, Managing Editor of BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Adam manages content across all titles in the Dynamis stable, as well as well as being a regular contributor to other industry publications, both print and online.