In the past, family-owned businesses were common – shop owners operated their stores for years and once they eventually retired, they left them to their children.
And while today business owners don’t include family members in their organizations as nearly as often, it doesn’t mean family-owned companies are extinct – far from it.
As a matter of fact, today’s family businesses in fact range from regular mom-and-pop shops to Fortune 500 corporations.
Furthermore, according to the Forbes article “The Facts of Family Business” family-owned companies account for around 50% of America’s employment and 50% of GNP.
Is Running a Family Business Really Worth It?
So how do family businesses perform compared to the non-family ones? Well, you might be surprised to find out that they tend to outperform non-family owned businesses in almost every way possible.
A recent study published in the Hardwar Business Review revealed that they are in fact stronger financially and have a longer lifespan than their competitors. Also, the public tends to trust family-owned businesses more.
However, these businesses still face a unique set of challenges, because they are ran by people whose lives intertwined in every way possible. So if you’re looking to start or take over a family business, let’s take a look at some of the most-common challenges family business face.
Four Family Business Challenges
1. How to Separate Your Family and Work
In a family business, old, personal grudges often seep in to the business side of things. Your family members probably have insight into each other’s personalities that non-related partners don’t. This makes crossing the professional line into personal terrain quite tempting at times.
Arguing with a partner or shouting at a co-worker is basically unthinkable in the corporate world; however, it’s a lot easier to lose your cool and get into a shouting match with a family member. So remember to leave your emotions out of this, and keep in mind that your family members are now also your co-workers at the office.
2. Handle the Employment Policies
Some family-owned business don’t actually have any clear policies about qualifications family members need to have in order to be hired or even obtain a large role in the organization. So in order to avoid this, you need to set up a clear (and highly-detailed) employment policy that will cut through any ambiguities.
And just in case a family member decides to sell his or her share, you should have paperwork in place to avoid any misunderstandings down the line. But don’t worry, you can easily find a heads of agreement template online and fill it out without any lawyers involved.
3. Make Sure Everyone is Fairly Compensated
Money is a complicated topic in any family – and when some family members feel like they contributing more than others, things can get even trickier. This often happens when every member of the family has an equal stake in the company.
The best way to avoid family resentment is to ensure that everyone is paid as they would be in a similar position in the open market. And once you determine the compensation, any additional money should split evenly to every family member or maybe provided through fringe benefits.
4. Plan for the Future Carefully
Each family-owned business has about 33% chances of carrying over to the next generation. In fact, according to Conway Center, only 30% of these businesses actually transition to the 2nd generation; 12% to the 3rd and 3% to the 4th. So, if you want your business to carry over to your great-grandchildren, you need to make plans for succession as soon as possible.
Some people put off these plans, simply because they don’t want to make any major rifts within their families. But when the lines of authority are not well-documented, the business itself becomes highly unstable. So you should definitely hire a business adviser who’s not a member of your family to address any complaints, or at least establish a dispute-resolution plan.
Although a family business can be more rewarding than a regular one, managing these organizations can sometimes be tougher than it seems.
That’s why it’s crucial that all the family members learn to keep their feeling out of business decision and put the success of the organization first.