Family businesses are commonplace. Generations of the same family might follow in their elders’ shoes in joining the family business or a family business might be a fairly new venture. Whatever their origins, family businesses have their own unique dynamics which need to be managed properly to ensure the future success of the business.
Most family businesses are set up on an informal basis due to the close relationship between the members. This structure can work well in the beginning and where family members get along with each other.
Problems can occur however when family businesses grow and others join the business (either other family members or third parties) and at this point an informal structure may no longer be a viable vehicle for running the business.
The main advantage which family businesses tend to have over other businesses is their informal structure which allows them to operate very flexibly, making quick decisions and running the business in a way which suits them. However, difficulties can arise such as:
- Dominant members wishing to force their opinions upon others;
- Under performing members who the others perceive are not pulling their weight;
- Being able to agree the future strategy for the business, especially when meeting the needs of competing generations in the business;
- Making decisions about who can and cannot work in the business, especially spouses joining the business
How to avoid these problems
As much as you might like the lack of structure to your business this can be its downfall. Having agreed roles and ‘family rules’ in place helps to keep the peace and allows the business to be run smoothly are essential.
Having these things documented at the beginning of a new venture is always sensible but there is nothing to stop very established businesses doing the same as long as everyone agrees to implement a set of rules. The format of these rules will differ depending upon the type of business you are running but will commonly include documents such as a shareholders’ agreement, service contracts and partnership agreements.
These documents will help to identity and resolve the following common areas of conflict in family businesses:
- Identifying roles in the business: it can be of great assistance to clarify everyone’s role in your business to avoid any areas of confusion or doubt.
- Avoiding future conflicts: it can be helpful to set out what the business objectives are and agreeing a procedure for how decisions are to be made in the future. Who has a say in what decisions and whether certain important decisions need a majority or even a full consensus to be carried.
- Resolving conflicts: agreeing how genuine disagreements are to be resolved can help your business avoid reaching a stalemate position which might stifle your business progressing.
- Staff management: this is often overlooked in a family business whereas in other businesses members would have the ability to earn promotions or bonuses for their work.
- Succession planning: how future family members will be introduced into the business to ensure its future success.
Working through the exercise of preparing these documents can help families to formulate their views about these important issues and this in itself can be a helpful exercise, avoiding conflicts in the future.