Saturday, 15th February 2020 | Marketing,Management
Three common pitfalls family businesses should actively avoid
Hiring family to work at your business has its benefits, but there are also some pitfalls. We’re diving into those pitfalls and the steps you can take to mitigate or entirely eliminate them so you can all enjoy family harmony and a long-lasting business.
Running any small business has its challenges, from hiring the right employees to managing changing market conditions to meeting cash flow needs. Bringing family into the equation is beneficial in many ways, but with that comes a host of unique difficulties. In this post we’re diving into three pitfalls of working with family that are among the most common—and the steps you can take to mitigate or entirely eliminate them so you can all enjoy family harmony and a long-lasting business.
1. Informal work culture
When you work with the same folks you share a dinner table with it’s easy to fall into an informal work culture. While on the one hand this can create a fun and flexible environment, it might also lead to real problems. It’s tempting to be lax when training or managing a family member, for example, and if you set that standard with one employee you pretty much have to make it a business-wide approach. This means that non-family employees are also treated in the same, informal way. Not only can this be difficult in practice, but it’s likely to dull one of the most valuable aspects of having employees from outside your family: their external point of view. “Fresh eyes” are critical for any business to thrive, but a non-family employee might worry that their opinions will be overlooked, or worse, rejected outright. Identifying and retaining external employees is often difficult because it’s so challenging to work as an outsider. Further, these employees may feel—rightfully or not—that opportunities for advancement are reserved for family.
The best way to handle this pitfall is to formalize your human resources practice. Build and implement a conflict resolution plan that provides a documented system and a safe place to handle disputes. If you don’t have the expertise to do this, hire an HR consultant. They can equip you with the proper documentation and act as an unbiased decision-maker when needed.
2. Lack of management and systems rigour
The same informal culture discussed above can also result in a lack of documentation, policies, and defined strategy and goals. This is just plain bad business practice. Without these things in place, finding capital to grow is going to be nearly impossible. And, even if things are going well, handling the question of profit distribution between related owners is tricky.
On a managerial level, it’s important to create a development plan for key family members. Avoid providing arbitrary promotions by putting family members on an education track, including professional development, so they can hone their skills and earn their rank. Consider requiring that people work elsewhere for at least 5 years to broaden their perspective. Be sure to have open conversations with them about their career path, and provide incentives for them to stick around.
At the systems level, you must put together proper documentation. Just because your business is run by your family doesn’t mean it should be treated loosely. Having clearly defined policies and procedures will help you run a tight ship, and a strategy will set your course. Attorney’s fees are business deductible and the cost and potential heartache avoided in the long run will make this a worthwhile expense.
3. Lack of succession plan
Succession planning, which lays out how to replace leaders after they leave, is crucial for any business but even more so for a family business. Without one, you’ll be vulnerable to a high degree of interpersonal politics and emotion (particularly in the case of a death) in addition to the organizational and managerial chaos associated with succession. All businesses need to plan for the future—and this goes double when it’s a family business.
The best way to avoid problems down the road is to proactively seek out advisors. Make sure you work with your CPA, your estate attorney, and other transactional attorneys. Finally, ensure that your business has one “quarterback”—an advisor responsible for driving your written project plan during the transition.
Running a family business offers plenty of rewards. If you’re proactive about avoiding pitfalls, these three common ones, in particular, you’ll reduce the number of administrative and interpersonal problems, and instead be able to focus on sales and growth.
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