In many cases, small to medium sized businesses are family businesses and family businesses bring with them many unique challenges. I recently read an article that listed the 20 most common challenges with a family business. To quote that article they are as follows:
1 – Emotions. Family problems will affect the business. Divorce, separations, health or financial problems also create difficult political situations for the family members.
2 – Informality. Absence of clear policies and business norms for family members
3 – Tunnel vision. Lack of outside opinions and diversity on how to operate the business.
4 – Lack of written strategy. No documented plan or long term planning.
5 – Compensation problems for family members. Dividends, salaries, benefits and compensation for non-participating family members are not clearly defined and justified.
6 – Role confusion. Roles and responsibilities must be clearly defined.
7 – Lack of talent. Hiring family members who are not qualified or lack the skills and abilities for the organization. Inability to fire them when it is clear they are not working out.
8 – High turnover of non-family members. When employees feel that the family “mafia” will always advance over outsiders and when employees realize that management is incompetent.
9 – Succession Planning. Most family organizations do not have a plan for handing the power to the next generation, leading to great political conflicts and divisions.
10 – Retirement and estate planning. Long term planning to cover the necessities and realities of older members when they leave the company.
11 – Training. There should be a specific training program when you integrate family members into the company. This should provide specific information that related to the goals, expectations and obligations of the position.
12 – Paternalistic. Control is centralized and influenced by tradition instead of good management practices.
13 – Overly Conservative. Older family members try to preserve the status quo and resist change. Especially resistance to ideas and change proposed by the younger generation.
14 – Communication problems. Provoked by role confusion, emotions (envy, fear, anger), political divisions or other relationship problems.
15 – Systematic thinking. Decisions are made day-to-day in response to problems. No long-term planning or strategic planning.
16 – Exit strategy. No clear plan on how to sell, close or walk away from the business.
17 – Business valuation. No knowledge of the worth of the business, and the factors that make it valuable or decrease its value.
18 – Growth. Problems due to lack of capital and new investment or resistance to re-investment in the business.
19 – Vision. Each family member has a different vision of the business and different goals.
20 – Control of operations. Difficult to control other members of the family. Lack of participation in the day-to-day work and supervision required.
I concur with the author of this article and have experience working with many family businesses and these issues are real and must be dealt with. I have found that successfully run family business are open to these challenges, acknowledge that they must be dealt with, and deal with them head on. The family businesses that aren’t as successful might need help from someone like a part-time CFO or non-family member to help them recognize that some of these challenges even exist and must be dealt with.
By recognizing there are challenges in running a family business, identifying what challenges actual exist, and addressing them head on, having a family business that meets the needs of the family members involved can be a very satisfying and even rewarding experience. But if not addressed, some of the most complicated, emotional, and uncomfortable situations can arise that can devastate family relationships forever. By hiring a seasoned CFO consultant to help identify these challenges and address them head on, a family business can be a successful company that will exist through many generations.
I think related to #s 15, 17 and 20 above could be the inclusion of analytics or business intelligence. Family-owned businesses make a lot of decisions from the gut, but they should base their decisions based on real data, and how the data jibs with key performance indicators that they would objectively set for their business.
Great article!