Business & Finance SME's

14 tips to running a successful family business

Written by Ade

All over the world, family-owned businesses account for about two-thirds of businesses, but unfortunately few survive past the third generation

Bayo Lawal

It is interesting fact that some of the biggest companies in the world, including Nigeria, are family-owned businesses. This underlines the fact that family businesses are not usually small and medium businesses.

Also, the sheer great number of these types of businesses and the diversity of their operations/ sectors make them of great economic value in any economy.

However, the sad news is that just a few per cent of them barely survive past the third generation.

Many family businesses get into problems for many reasons. These include when family conflicts get into the mainstream of the business operations, when corporate governance is weak or non-existent and when favouritism gets into prominence when allocating resources and appraisal.

But, in as much as there is a bleak outlook for family businesses to survive into generations, some have survived the stiff competition of the marketplace and the negativity associated with family businesses for the managers to pass the batons on from generation to generation.

The Observers Life gives some tips on how you can make your family-owned business survive profitably from your generation to next and beyond.

These are the tips:

Establish clear and regular methods of communication: The normal way of family communication should be slightly modified to allow for business. Create room for open, regular communication which should be an essential part of the business. Set up weekly meetings to assess progress and situations.

Problems and differences of opinion would play a big part in the running of the business. Encourage all to air any differences and promptly resolve disputes.

Develop an environment of open communication to help build trust and teamwork among all family members.

Treat the venture like a business: Remove all emotions when dealing with family members in the business. The key emphasis should be on running a successful business venture and not appeasing family members’ feelings. Sometimes this may temporarily disrupt family harmony.

Try not to take the business home. Do not mix business, personal and home life. Try and limit business discussions outside of the office. Keep family issues out of the business place and keep business issues out of the home.

Also, all business relationships involving family members should be written: This should clearly state what they will get out of the business relationship, including compensation, ownership shares, duties and other matters. This will help avoid hard feelings or miscommunication.

Hire members for the position: The family business should not be the dumping ground for family members. Do not provide sympathy jobs for family members. Hiring, especially from middle-level positions should be based on what skills, knowledge, credentials, and demonstrated performance to do the job. Members, without these criteria but are interested in the family business, can be brought in at an entry-level position and have them prove their competence along the line by demonstrating their eagerness to learn and contribute value to the business.

Design and allocate roles/ responsibilities:  Aright from the beginning clearly state job responsibilities and expectations, what is expected of each employee (including family members), and what the consequences will be for not meeting those expectations.

 This should also state the reporting and supervising. It is better to use non-family members to oversee family members. 

Duties should be allocated to avoid conflicts. Family members should not be allowed to reprimand employees who don’t report to them, as this can lead to resentment by employees and the supervising family members.

Efforts should be made to provide any necessary training to all employees are equipped and prepared to perform job duties. 

Provide orientation to the Organization’s culture and norms:  All new employees, including family members, should be given orientation and induction to the organization’s culture and norms, including its dos and don’ts, and expectations.

For new family members, this can be extended to include spending time in each department to get an inner working knowledge of how each area of the business is interwoven with others.

 Create a standard and fair employee performance measurement system: Create a standard system to measure and manage employee performance. This should be done periodically for all employees.

When family members don’t meet performance objectives they should be dealt with the same as any other employee. And where the performance of family members consistently fall short, they should be gradually eased out.

Be bold to make the tough call: As the head of the business, do not shy from making the tough decision whenever such a situation arises. You must always put the business objectives over family relationships.

It is a foolish and bad business decision to feel obligated to carry the dead weight of under-performing or risks of fraudulent family employees.

The moment a clear case of consistent under-performing or large fraud has been established the family member should be let go. And this should be done quickly, waiting or delaying a final decision, it might not be done again. This, later, rob negatively on the business: bad precedent set, can affect the morale of other employees- family and non-family members and impact negatively on the profits as valuable business resources have been wasted.

Practice good governance/recruit from outside: Good corporate governance structure should be put in place and adhered to at all times. As the business grows, outsiders can be invited to sit in the Board for oversight functions, especially in form of a professional, advisory, or supervisory nature. All laws and regulations as it involves the business’ operations should be strictly adhered to.

The business should from time to time also seek outside professional advice that will help open up and strengthen its decision-making process. This helps to bring in the much-needed reality check for the business. Recruiting good hands from outside the family and giving them responsibilities in the decision-making process will enable the business to tap into a pool of talents,  skills and expertise not available within the family.

In reality, family businesses are much vulnerable to embezzlement because of inbuilt trust levels. Hence. Oversight and internal checking measures should be in place to check and prevent this. This might involve the separation of duties between recording receipts from booking sales or generating invoices. Withdrawal limits can also be set for different officers while auditors are hired to complete periodically audits to ensure transparent, accurate bookkeeping.

Improve with time: A great chance of the business surviving into generations is its ability to change with the times, especially in line with the adoption of new technology, changing corporate cultural norms. This attitude will ensure its relative competitiveness in its industry while being in harmony with the changing tastes and characteristics of its customers and internal stakeholders.

Recognize and tap into family resources: There are some advantages of family-owned businesses, including the talents and skills of family members. This can be tapped into at lower or no cost. Sometimes this largesse might be a survival grace for the business.

Treat employees like family: Every employee should be treated like family, whether they are relatives or not. This practice also extends to family members. They should be treated fairly. Efforts should be made to adequately compensate for their efforts. Pay scales, promotions, work schedules, criticisms, praises, promotions and queries should be evenhanded among all employees. Don’t set higher or lower standards for family members.

Develop a succession plan: Family businesses should have a business plan that outlines the current realities and plans for the future, all in writing. This should be discussed with the family members, with necessary revisions made periodically.

The business plan should include a formal succession plan, which should spell out the details of how and when the younger generation will take over. The future must be strategically planned for, this will include identifying the talents of employees (family and non-family members), investing in them early on to ensure excellent leadership in the future.

Please note that family businesses are susceptible to instability and collapse during times of generational transition. It is very important to have good succession plans well before the transitions phase arrives. This might include having a formal document for next-generation inheritance and family protocols, incorporating such issues like steps leading to transitions, buy-outs and shifts in responsibility and duties, who inherits the shares if a family member with no direct heirs dies.

Make joining the business optional: Let every family member has the free will to decide to join or not join the family business without a guilty feeling. Family members should be passionate about working for the business. And if the thrill is not there, there should be let go. They can contribute their talents and skills part-time for the growth of the business  

Require outside experience first: The best way to introduce the younger members of the family is to allow them first to gain experience outside the business. This can be between two to five years. This will enable them to gain valuable perspectives on how the business world works outside of a family setting.

It is a particularly hard task managing a family business for profit, growth and survival. But business sure has some advantages that could be tapped into to achieve these.

Starting and running a business with one’s spouse, parents, siblings, children or other family members is an exciting experience and can be shaped into a positive outcome despite the possible unique challenges over and above the usual problems of any other business

About the author

Ade

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