Four Challenges for Family Businesses and Tips for Solving Them
By Trip Holmes
From overall stability to a strong sense of shared commitment, running or working in a family business has a number of advantages. But anyone who’s been involved with one knows that it’s no cake walk, either. It’s just a fact of life: family-run companies come with a unique set of benefits and challenges.
Today, I’m going to share four challenges that I’ve advised family businesses on for more than three decades.
Navigating Relationships
Naturally, it’s difficult for us to compartmentalize family relationships that also happen to be working relationships. How are you supposed to separate “Mom” from “Boss” when they’re the same person? Or little brother from co-worker? But, while challenging, setting a clear boundary between personal and work relationships is crucial for the smooth operation of a family business. When old family grudges begin to seep into the workplace — or vice versa, when a conflict at work leads to personal conflict between family members — your business and your family suffers.
I recommend drawing clear boundaries, such as keeping work talk to a minimum after working hours, and especially during family time. Many family businesses know that it helps to clearly define separate roles for everyone at work. This way, no one feels like their own work is being encroached on, and micromanagement is kept to a minimum.
Succession Planning
Creating a strong succession plan early on is vital to the intergenerational success of any family-owned business. With each generation, the chance of keeping the business both in operation and within the family decreases. Keeping this in mind, it’s crucial to establish a well-defined plan with clear lines of who has authority and responsibility. Failing to do so destabilizes the business, leading to power struggles, rivalries, and poor leadership. It ultimately makes the future of the operation less certain.
Families who want to ensure their business legacy should hire a trusted advisor. Succession planning advisors bring a wealth of expertise, as well as an objective eye to family affairs.
Hiring the Right People for the Right Roles—Family or Not
Nepotism occurs on some level in many businesses, and family-run companies are no exception. Family members recruit other family members to the business for a variety of reasons, and qualification isn’t always one of them; sometimes, a relative might just be in need of a job, and those in the business want to help out. Other times, it’s just a matter of ego, or a desire to see a specific family member succeed in a specific role. No matter how well-intentioned, nepotism can lead to unqualified people being placed in positions for which they’re entirely unprepared. Once hired, it’s even harder to fire family members, so it’s important to avoid this problem altogether.
We recommend setting strict criteria for each open position and sticking to it. Select only qualified candidates, whether they are family or not. This may mean bringing in outsiders for certain roles when the criteria dictate. You may prefer to “keep it in the family,” but sticking to that principle 100 percent of the time can be disastrous for family businesses . If you do hire relatives, you’ll need to set clear policies for both hiring and performance evaluations, consistent with those of your non-relative employees. Relatives, like any other employees, should be held accountable to a certain standard of job performance.
Lack of Structure
Because of the inherent trust we feel around our family members, internal and external rules can sometimes fall by the wayside. However, it’s important to operate your family business with the same level of formality and adherence to rules as any other firm. Failing to attend to each detail of governing your business, whether it’s adhering to corporate laws or establishing a clear hierarchy, has detrimental effects. It can lead to fines and legal charges, not to mention a higher risk of family conflict.
Treat your job at the family business like you would treat any other: with professionalism and attention to detail. This ethos will help you avoid compliance issues and manage conflict.
We Can Help!
At Sabre Capital, we work with family business owners to help tackle these challenges and many others. Contact us at Sabre Capital today for expert advice on mergers, acquisitions, and succession planning. For 35 years, we’ve helped take family businesses across the Carolinas and Virginia to new heights, and we’d love to do the same for you.