A family run business can be incredibly rewarding for both the owners and the employees. Compared to a large corporation, they are more appealing to many employees, are flexible, can pivot quickly, and usually plan far into the future. On the other hand, there are many unique challenges that can appear regardless of where your family business is in its life cycle.
We’ll walk you through some of the challenges you can expect to be faced with and discuss ways to help you find effective solutions that suit everyone involved.
Facing Your Family Run Business Challenges Head On
Working in a family business is a wonderful way of reducing costs, having future certainty, and the knowledge that there are others as committed to ensuring the business is successful as you are. Yet there are some challenges that large corporations and other non-family businesses do not face, including:
- Family member conflict – one of the grandchildren decides they don’t want to go to work today, and instead head to the beach. Or Aunty June refuses to be in the same room as your cousin Peter because he said he didn’t like the Christmas pudding she cooked last year. Whatever the cause, it feels far harder and much more awkward when solving conflicts between family members. You don’t want to step on other people’s toes and certainly feel that you can’t tell Aunty June to let it go, nor bring up the grandchild’s attitude problem and face their parent’s wrath!
- Entitlement – entitlement isn’t something new, and it occurs both in and outside of family businesses. But within a family business, there will be those who have worked hard and genuinely feel that they deserve a higher wage or a larger share of the profits that other family members. Or that Cousin Tim wants you to choose him to take over his father’s finance position when he retires, regardless of the fact that their sister is an accountant and much more suitable for the job.
- Succession – your family business has been a part of your life since you were a child. You’ve spent your holidays working there and chose a degree which would be useful to you in the future. Problem is, you have no idea what your father’s succession plan is and it is clear he believes he nowhere near the time to begin stepping down. If you knew what your future role would be, you’d be far more engaged in what you do today and less likely to seek a position outside the business.
- Lack of interest – your goal is to pass on your business to your children, so they too can experience the joy and share your passion for running it. Problem is, they’re not interested at all and as such are disengaged and unenthusiastic. You feel let down and hurt they won’t stay in the appliance, while they just want to head overseas and follow their love of fashion.
While these and other conflicts may be unavoidable, they can certainly be manageable by having the processes and planning in place.
Managing Problems in the Family Run Business
All businesses should have in place comprehensive written policies, procedures and guidelines for all situations within the workplace, including in HR! Family relationships and dynamics will be in play and it is vital that everyone knows what is expected of them.
Here is a list of key documents, which if applicable to your family business, should have in place to not only prevent expected challenges, but to also find solutions which are fair to all parties:
- Business structure – be clear on the type of business structure you are using: sole trader, companies or partnerships. This will clearly set out how profits, debt and work will be shared, tax responsibilities, shares and assets will be managed.
- Family governance – this involves the setting of strategic issues, such as guiding principles, goals, and shareholder agreements. It should also include the making of wills and succession plans, so that all parties are aware of what will happen when someone dies or decides to leave the business.
- Business plan – every business needs a comprehensive plan, so this is a must. Within your family’s business plan, you may want to also include details about what role each member of the family has in the business, when decisions are made and who has a say in making them. This will help keep everything out in the open, so everyone feels they are able to have their say and understand what is expected of each person.
- Prenuptial agreements – having a prenuptial agreement between a family member and their new partner is worth considering. In New Zealand, the Property Relationships Act clearly states that all couples who have been living together for a minimum of three years, are eligible if relationship ends through separation or death, to receive an equal share of the relationship property. This can include shares or part ownership of the family business.
- Family employee policy – when hiring an employee for a role, you select the best person for the position. This should also be the case when it comes to a family business. Using an external HR professional to help with the hiring and setting of job positions can make this a much easier process for everyone.
Then as well as key documents, the way you run the business as a family is also important. Regular and effective communication processes should be followed, and those with concerns should be encouraged to speak up rather than let it fester. Separating work and family life is also important, having no-go business zones and clear agreements not to talk shop while at home.
Tension is common within families, and then with the added pressures of running a business, tempers will flare, and people will have different options from one another. Being able to act and arrange the assistance of an independent mediator is highly recommended when there are significant levels of conflict. As the employer, the business may be able to take advantage of the free mediation service from Employment New Zealand. During mediation, both sides will work together to find an outcome which both parties will be happy with.
We’re Here to Help Your Business
Our business development and advisory service is available to assist you with your business planning, assist you to monitor your business’ performance and provide the business coaching and support your family needs to ensure success. We’d love to have a chat with you and your family on how we can help your business thrive and can also provide bookkeeping and accounting services for you as well. There’s nothing smarter than running your own family business, using your family member’s talents and knowing when to outsource the tasks. Get in touch to arrange a time to meet up for a free consultation with our family business today!