Some believe you must sacrifice family relationships for success in a family business. But in fact, focus on the family doesn't drain business success – it enhances it.
In a recent survey of 1,000 of the world's largest and oldest family businesses, EY found that those focused on family cohesion and profitable business growth were the most successful. Regardless of the company's size or industry, there are several steps companies can take to build stronger family ties and more successful business:
Plan today for tomorrow
Succession planning is a topic that many family business owners shy away from, as it forces them to confront emotional issues like planning for retirement and death. The reality is that approximately 70 per cent of family businesses do not effectively transition over to the second generation. Family business leaders who start planning for succession early on will be in a better position to determine whether to transition the company over to the next generation – or make strategic decisions around the sale of the business.
Owner must look objectively at whether the business should be passed down to the next generation, transitioned to a third party or sold altogether. Factors such as age, desire, skill set, management experience, family dynamics and the current state of the business should all be considered when deciding how the business will be led when it's time to exit.
They should also solicit advice from trusted advisers who can evaluate the practical aspects of the plan. Once details of the succession are in place, it's important to communicate the plan to first-generation shareholders as well as ensure enough time to transition to the second-generation leader.
Keep the peace
Conflict often arises when family members are unclear of the role they play in the business. Not all family members may be cut out for the business or possess the proper skill set to be in leadership positions. It's essential that all members evaluate their skills as well as determine how they would like to be involved in the day-to-day management and operation of the business. For some, playing an active role may not be the right fit.
When family members understand their roles and responsibilities, there is less room for confusion and misunderstanding. Having a sense of one's place in the family business is a primary driver in optimizing both family cohesion and profitable growth of the company.
Look beyond the comfort zone
Finding the right balance between growing the business and maintaining control can be difficult for family business owners. Access to capital is critical for any business and many leaders struggle with the idea of having to potentially give up shares in the company to achieve financial targets.
It's important for family shareholders inside or outside the company to understand the company's vision, strategy and financial targets. Many families may need to adjust their attitudes about financing the business to secure capital to carry the business forward. Maintaining transparency around financing decisions with key stakeholders in the business helps develop confidence and commitment to its future.
David Fabian and David Steinberg are the national co-leaders of the private mid-market practice at EY. Follow them @EY_CAPrivateCo and follow David Steinberg @SteinbergPMM.