Every year there are families all over the globe that decide to start new family businesses. Whatever the ties between family members, starting a business with siblings, parents or other members of the family presents unique set of challenges that are different than the usual challenges faced by businesses. That’s why only a fraction of family businesses make it to the next generation.
According to the Small Business Administration, 90 percent of all businesses in the United States are family-owned businesses. This indicates that family-owned companies continue to be a powerful force in the business industry.
While there are several perks involved in running a business with your loved ones, the dynamics of this kind of business operation can pose acute dangers. Here’s is what usually goes wrong in family businesses and what you can do to keep it from happening to yours.
Emotions running the business
A common pitfall in the nature of family businesses is that those in charge place more emphasis on the ‘family’ instead of the ‘business’. When emotions get in the way of your business, it can make your company appear weaker to both your customers and your employees and, in the long run, affect the business owner’s ability to make sound decisions. It is important to find the right balance and that will depend quite a lot on the dynamics of your company operations.
It is also true that focusing too much attention on family members can result in non-family employees leaving the company, because of perceived limits for growth opportunities. When opportunities to advance to a better role within the company aren’t open to everyone, many talented employees will move on to better positions other companies. As a result, it is essential to include a good mix of non-family members in leadership roles. Non-family employees add balance to the business as they can make decisions from an unemotional position.
Not being familiar with tax and other implications
Many family business decisions are affected by factors such as business structure, insurance policies, tax policies, terms, governance, leadership development, and even payroll choices. And here’s the secret for most businesses: family-owned businesses have a much better chance of long-term success when they are protectively managed and planned.
For new and even some existing businesses, this may not be possible because of a shortage of time or because too many family members are in leadership roles that are dedicated to other company operations such as product development.
In such scenarios, family members have other options including the one detailed here in CPApowered.org.
CPAs can help businesses set up and maintain processes to keep their business plan, succession plan, and operating policies current. CPAs can also help in making decisions that will protect what you’ve built (hopefully) for generations to come. With such options, you can continue doing what you do best, and let solution providers like CPAs do the rest.
Not putting relationships in writing
It’s easy for a family-owned business to run operations, sign contracts, negotiate with clients, etc. without ever putting anything in writing. That is a big mistake. It is important to put things like ownership shares, duties and other aspects in writing. These documents will also be helpful when non-family members own a certain percentage of the business, or when disputes arise.
You also need to divide roles and responsibilities and state them in writing. While various staff members may be qualified for the same role, conflicts can be avoided when duties are clearly defined. As a result, there will be no distortions when big decisions are to be made.
Remember: a family business is still a business. It is important to keep as much of the family dynamic at home so that the “business” part of your business can thrive.
Featured image credit: ShutterStock
