Running a family business isn’t easy at the best of times, but when different generations are involved it is even more complex. Jenny Hulme finds out how to steer a course to success.
People love the idea of a family business.
Something that has been in the same safe hands for generations is rather romantic in this day and age.
It conjures up thoughts of the farm passed from father to son, the cake recipe that made the children a million, or the grandchild guaranteed a job and a future thanks to family ties.
But there is a bigger story to tell. Much bigger. A staggering 70 per cent of businesses in the private sector are family run, and that number (employing millions of people) covers everything from multinational blue-chip organisations to tiny start-ups.
And while there are surely some benefits to keeping things in the family – not least the shared passion and commitment that can breed success – most recognise that a family business comes with additional complications. Mixing family and business is rarely straightforward, and experts say that is reflected in the high attrition rate. Only a third of family businesses are still going after two generations.
“Family businesses tend to be lumped into the SME sector, but they are often very different from the average SME,” says John Tucker, director of the Bristol-based International Centre for Families in Business.
“There are so many questions these businesses have to consider, but often don’t – the most obvious being does the next generation have the right skills?”
Tucker’s organisation offers advice and assistance on a raft of related issues – among them skills development, shareholder agreements and creating a management team that can reconcile family and business goals. The aim is to help businesses evolve effectively to become successful and secure.
On top of this, there are numerous tax issues to be considered, says Robert Brown of PricewaterhouseCoopers, which advises family-owned companies on succession issues.
“The family business is often a pension for an outgoing managing director, so how that income stream is going to be organised and secured needs to be looked at,” says Brown.
At its most basic, the complexity of the parent-child relationship means it is easy for the boundaries to become blurred in family-run companies, says John Tucker. “We advise those involved to think through whether keeping it in the family is what everyone wants. The next generation needs to decide whether they can handle the responsibility.
“Consider what would happen if the business wasn’t going well under a son’s management. Would his father – chairman of the board – sack him when he has grandchildren reliant on the income? Is putting an older brother into a lower position than his younger sibling straightforward? And why did you want your children onboard? To protect them? And why did they want to get involved? A sense of duty? And can you let go if they run it differently?
“Otherwise at some point in that heated boardroom someone might say, ‘look son, this is the way it has to be.’”
There are no easy answers or hard-and-fast rules, says Tucker. “But businesses need to think clearly about the future before they set a course.”
It’s not all about the pitfalls. There are many success stories to prove that when a family business is handled well the rewards can be huge and it’s important to understand just what lies behind those successes.
Also in: December 2008/January 2009
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