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Ten reasons why family businesses fail Add to ...

Family enterprise forms the backbone of the Canadian economy, with families owning or controlling 80 per cent of all businesses. But research shows that 30 per cent survive into the second generation while even less continues to the third. The success of family business inevitably comes down to the fine art of integrating and balancing the needs between ownership, family and business. Here are ten reasons why family businesses struggle:

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1. Poor succession planning. A PricewaterhouseCoopers survey shows that half of family businesses sampled did not have a succession plan in place, and only half of those that did had designated a specific person to take the reins. Entrepreneurs can become hesitant to place their passion in the hands of another or simply become too caught up in day-to-day challenges of the business. However, succession can require a multi-stage process of growing involvement and it’s crucial for predecessors to dedicate time to creating a business roadmap. Planning cannot be done in isolation of the family or you are planning to fail. Advisers typically make the mistake of promoting planning only with the controlling generation.

2. Lack of trusted advisers. While lawyers, accountants, financial planners, therapists etc. have formidable technical skills, many require a more sophisticated level of understanding around business families and their unique challenges. Trusted advisers should be able to work collaboratively with other disciplines to provide the best outcome for the family and avoid giving conflicting advice. The Institute for Family Enterprise Advisors (IFEA) is a designating body that accredits those advisors who fill both criteria.

3. Family conflict. Mutual support among relatives is key for instilling loyalty towards the family business. Many families lack procedures that help manage conflict in an objective and productive way, so seeking outside help is often necessary to help the family out of seemingly unresolvable issues.

4. Different visions between generations. Generational conflict can hinder the growth of the business, especially if there’s a disagreement in core values and missions. The next generation should be careful not to reject established work methods and entrepreneurial vision, just as predecessors should demonstrate flexibility in exploring new management strategies and ideas for innovation.

5. Governance challenges. Business families don’t need to just consider corporate governance. In addition to corporate oversight, they require family and shareholder governance infrastructure. Family governance requires family meetings, councils or assemblies which requires time and commitment. It’s crucial to communicate and create a flow of information between owners, the business and the family. Many members fear raising sensitive issues, losing control or sharing too much information. Without governance, members are confronted with exclusion and secrecy, assumptions and procrastination.

6. Exclusion of family members outside the business. Every family member has an investment in the business and the overall assets of the family, whether they are active in the management of the business or assets. Because the business and assets impact lifestyle, health, and happiness of everyone in the business family, the “let’s deal with business as business approach” seldom works for the family. A forum outside of business for family – both married into and born into the business – and shareholders to deal with issues is critical.

7. Unprepared next generation leaders. In successful transition cases, the next generation is not parachuted into a top position. It’s important for successors to learn the ropes and learn all aspects of the business. The business should create guiding principles outlining requisite education and experience before making offers of employment.

8. Poor strategic planning. Good planning creates motivation that can sustain the family and business through various trials that arise. Businesses should be careful to balance the needs of family and business – family considerations can restrict the strategic aggressiveness within the business, yet strategic planning should include more than just finances.

9. Not using their 'familiness' advantage. 'Familiness' refers to the unique resources embedded in a family business. Many of the world’s oldest and most respected businesses are family owned. By identifying family with business, the firm can promote a brand of security, loyalty and commitment.

10. Fundamental principles of business are not applicable. Traditional business education is not catered to meet the complex demands of a business family. Central issues like family dynamics, succession planning, family governance and communication are often overlooked in MBA programs, business degrees and continuing education courses. Families wanting to ensure successful succession of their businesses should seek out specialized education in the business family field.

The Business Families Centre at the University of British Columbia provides education and support to business families and family enterprise advisors, including lawyers, wealth managers, accountants, coaches and family therapists. The BFC’s Road Map program for business families is offered exclusively in Vancouver. The Family Enterprise Advisor Program is offered in both Toronto and Vancouver.

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