Managing both components of a family business can be complicated, but when it’s done correctly, the results can be personally satisfying as well as profitable.
The Credit Suisse Family 100 study shows family-owned companies, which include businesses where founders or their descendants own at least 20% of total shares, outperform non-family-run peers.
Four common pitfalls that threaten success
Researchers at IESE Business School say there are four main reasons why some family businesses are doomed to fail. They include:
- Confusing professional ties with personal relationships
- Passing on the business to children who do not have proper management skills
- Believing that market rules do not apply to family-run companies
- Waiting too long to put a succession plan in place
Steps to keep both your family and business healthy
Successfully-run family businesses understand the need for protection against crises and conflicts that threaten their existence. The ones that succeed put safeguards in place, such as:
- Treat family as family and business as business: This rule sounds simple but can be difficult to implement, but successful companies identify vital areas, such as making hiring decisions based on what’s best for the business.
- Establish conflict resolution procedures: Thriving family businesses understand the importance of having these systems in place to keep problems from worsening, as many emotions and sensitivities are involved.
- Build a clear hierarchical structure: Develop a management framework that’s easily understood by all. The business side might include a board of directors, while the family has a charter outlining everyone’s role and responsibilities.
- Don’t ignore the bottom line: Weigh the company’s success with the family’s growth to determine whether one is growing faster than the other. Challenges can arise if the family grows faster than the business.
Passing the torch to the next generation
The IESE Business School’s research involves decades of studying family businesses. An experienced business attorney can help you put policies and procedures in place to avoid the pitfalls and help your company thrive for years and generations to come.