A Cairdfore Opinion

One of the most difficult balancing acts when developing a family business is doing so without collapsing the family into the business. By this I mean, running the company as if it weren’t owned by a family. Problems arise when we collapse the two together. It becomes very easy to lose sight of the aspirations of each family member. Independent thinking, decision making and goal setting can get squashed by family business pressure. The business priorities can rule the day and family dinners quickly turn into corporate meetings or vice versa, the family and all of its peccadillos can infiltrate and disrupt the culture and workings of the business.

A few points to consider:

• Retain mediators, advisors and/or a form of family business coaching. Everyone in the family should have support voicing their opinion and sorting out their personal ambitions. The will of the founder may not be aligned with the will of each family member. It is important to uncover every person’s desires to avoid badly placed expectations and the wrongful positioning of people into jobs. If your heirs aren’t interested in the business or the job that you have designed for them, you need to sort that out up front.

• Prepare and implement a succession plan. The implementation part being the piece that many business owners seem to avoid. Don’t stay in the job past your expiry date. Encourage future growth and opportunity. Be careful not to let your legacy become your children’s liability by holding on to the reins to tightly. Once you have a clearly defined succession plan, trust in it and the next generation. Get out of your “children’s” way as you would if you had hired an outsider to run your business.

• Don’t put your name on the door. It may seem like the obvious or most gratifying solution to the “what do I call the company” question. In actuality it can be extremely detrimental. As soon as you put your name on the door, for example Smith’s Delicatessen, you have predetermined the fate of many, most importantly, your offspring. Whether the business succeeds brilliantly or is a colossal failure those carrying the name will be marked.

• Separate family assets and expenses from the business. For tax reasons and simplicity in process the family business is often the banker and the administrator for the family. This can work as long as the distinction is kept clear. You may need to unravel the two when the business changes hands or is sold to a third party. Be careful how intertwined your personal affairs become with your company.

Have you created clear boundaries between family and business? What needs to happen for your family and your business to succeed independent of the other?

Owning and operating a family business is an extremely complex endeavor. Not a job for weak characters and tentative actions. In my opinion, the fish rots (or not) from the head down and the founder of the business is the head of the fish. Part of the task when building a company is determining what will happen to it when you, its conceiver, are no longer an active participant. To not address critical areas such as succession, tax planning, corporate structure, governance and potential future growth is simply irresponsible. Yet most family businesses don’t make it past the second generation because of a lack of attention to these issues. That is not to say that founders don’t attempt to create a plan but the reality is that very few can separate business from family well enough to make the best decisions for either. To be unbiased is an extremely difficult, and at times a seemingly impossible, task.

For the next three weeks I will be writing a series of blogs on family business, sharing tips about how to build a strong foundation for future growth and increase the chances for a healthy legacy.

Here are the first three tips:

• It’s not a family business until you deem it so. Every company ever started could have become a family business. You need to decide early on if that is part of your intention. If the answer is yes then everyone involved needs to know. The employees need to understand that at some point the baton will be passed and it won’t be to them. The children (aka next generation) need to know from an early age that they may have the option of working for the business (depending on your succession structure) and it will someday be their responsibility. Lay the rules of the game out early in their lives so they understand what is expected.

• Have your children work outside the business to get their chops.  They will thank you for this. It is very difficult to build self-confidence within a family business. Your children need to get paid, be acknowledged and climb the ladder amongst strangers to understand that they can do it on their own. Approval from Mom and Dad just doesn’t carry the same weight. Your employees will have greater respect for the next generation who have proven themselves elsewhere.

• Don’t let your children work for you because they have nothing else to do. Too often the family business becomes a fall guy for lost souls. Children get parachuted into jobs that are created for them or that they aren’t qualified to do. It is easy to see how this action doesn’t serve your offspring or your company.

More on how to create a solid family business foundation next week, in the meantime consider;

What steps do you need to implement to increase your chances of a smooth transition?