Unique Challenges of a Family Business
Jonathan M. Gardey, MBA, CFA®, CFP®
President and Chief Executive Officer
Since before our country's founding, family businesses have been at the center of wealth creation in America. Family business founders take the leap of faith to launch their business venture, often risking everything, and then spend their waking hours to realize their vision. Today, about 55 million businesses in the U.S., representing nearly half the country's employment, are family-owned or controlled. Many will achieve some level of success, at which point they encounter a whole new range of challenges in balancing the demands of family life and the needs of their business.
Mixing Business and Family
Most people realize that the odds of a small business succeeding are low, but few people understand the difficulties of building a business around the intricacies of family dynamics. In the best of situations, the family offers a foundation of loyalty, trust, and dedication – traits on which most businesses thrive. In the worst cases, toxic family relationships that spew resentment and antagonism can bleed the business of its health.
Keeping Harmony in the Family
The commitment to a family business requires constant attention to strategy, customers, competition, cash flow, and the bottom line. It is only a matter of time before the family unit finds itself competing for a larger slice of attention and commitment to its needs. Any deterioration of family harmony will most likely spill over to the business. The family business owner must be able to achieve a balance of commitment and establish meaningful boundaries that guide family and business interaction.
The problem facing family business owners is that the boundaries between the business and the family become entangled, and the roles of parent/child and spouse/spouse are twisted with boss/employee and business partner/partner. This can only lead to a convolution of the diametrically opposing goals and tasks of the business and the family, which is not healthy for either.
Family goals and tasks are often emotion-based and oriented towards the individual family members. Family management is about nurturing, acceptance, and protecting against change. Business goals are reason-based and oriented towards the customer and the market. Managing a business requires a focus on profits and embracing change.
Establishing and maintaining boundaries is much easier said than done. It is not as simple as drawing a line that can't be crossed. Between the business and the family, several competing and overlapping roles must be recognized, requiring varying approaches to establishing different boundaries. In the end, however, they need to be clearly defined and communicated so that they are legitimatized and respected.
Blending Business Goals with Family Goals
The key to creating boundaries that can be maintained with minimal conflict is to use a collaborative approach that involves all family members based on blending the business's goals with the needs and interests of the family. Family values should form the core principles of the business, and there should be a shared vision of family and business hopes and dreams.
To accomplish this, the family and business units must develop separate plans that include mission statements, goals, strategies, and clearly delineated rules, roles, and expectations that guide behavior in the dual roles as a family member and business associate. The separate plans should be managed, monitored, and reinforced through distinct governing bodies consisting of a family council and a business advisory board wherein conflicts and issues can be assigned to their proper jurisdiction.
Maintaining effective boundaries requires constant attention to adapt them to the changing circumstance of the family and the business. As each matures, the needs, requirements, and dispositions of the individual family member/business associate will change. The more communication and transparency fostered through frequent family council and business advisory meetings, the greater adherence to family boundaries.
Keeping the Legacy Going
Many family businesses are started with an eye towards establishing a lasting family legacy for future generations. If life unfolds as one hopes, the family and business mature, a successor emerges, grooming begins, and plans for the transfer of management and control are developed and implemented - ideally.
But life doesn't always happen the way it is envisioned. Critical pieces of the puzzle may be missing, which force the consideration of alternative plans or options that were never anticipated. It happens this way often for family business owners, so it would be essential to assess your options as far in advance as possible.
The preferred option for many family businesses is to keep the business in the family. It takes a lot of planning that begins while the children are relatively young. As part of a family business succession strategy, there needs to be a multi-stage development plan for the children who are candidates, along with an objective way to assess their progress, interest, commitment, and competencies.
As the family and the business mature, it is vital to create definitive ownership transfer plans that include clear objectives, expectations, roles, responsibilities, and timetables. The plan must specify how the transfer of management, control, and, ultimately, ownership will occur. Short of that, your successor candidates may become discouraged or resentful. It is crucial to keep their commitment level high by moving them along a timeline with benchmarks and milestones that indicate how the transition is progressing.
Supporting Roles
There are many approaches for building a family-owned business that is strong and resilient enough to handle generational growth. Every family is different. But one thing that most successful family businesses have in common is a financial advisor who guides them through both personal and professional planning.
If you are in need of a financial ally who is well-versed in guiding family business owners and their families, we encourage you to visit our site and learn more about our services to see if Gardey Financial Advisors could be a good match. We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.
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