When embarking on an entrepreneurial venture with anyone, including people you trust (i.e. family and friends), be assured that there are always risks involved. To protect your interests for the future, it’s advisable to make your business relationship official by way of a commercial contract. Commercial contracts provide a practical framework which enables you to focus on your business needs and consider the associated risks. Once in place, they will provide your business with a greater level of protection from future potential issues. You need to be savvy in business and if you’re inexperienced about contracts, it makes good sense to take advice from those with skills and knowledge in this area, particularly in the legal field. Consider this – if you agree to go into business with your father, will you both view it as a continuation of your father/son comfort zone relationship, or will you view it as a new scenario? Many do not separate the friendship or family … [Read more...]
Dealing with an under-performing family member
This is one of those predictable problems which takes on additional angst because it involves a family member. As a predictable problem, its’ resolution can be proceduralised by specifically mentioning this situation in a family constitution so that there are no surprises if and when a situation like this occurs. But first things first. Why do people underperform? There are 4 reasons, 3 of which are the responsibility of family business management. The person cannot meet expectations The person does not know what is expected of them The person does not know that they are not meeting expectations The person will not meet expectations The first 3 reasons are management issues. Identifying the reason is the start point for the discussion. Are expectations too high? Are expectations too vague? Is the person’s role clear? Are the objectives set SMART? Are there regular reviews of the person’s performance? Is training or coaching provided to help the person … [Read more...]
Employing family members in the business
Talking to MDs of family businesses, I am struck by how many started off working in the business during school holidays and then fell into the business after school or university and worked their way up to the top job as the company grew and they became the obvious successor to typically – but not exclusively – the founding father. Move on a generation and second generation owners have different and similar challenges. Holiday jobs are still on offer but the next generation, on graduating from university (typically), want to forge their own careers and get trained in their chosen career. Mum and/or Dads business seems less exciting and probably not an immediate career choice as the child wants to spread his/her wings. First of all that’s good news. I would recommend that any children of the owners in a family business go out and experience the world, get trained, learn about a sector or two, and perhaps get a professional qualification be it plumbing or accounting. They will … [Read more...]
Employing ‘partners’ or ‘spouses’ in the family business
Over the Christmas break l was reading an article about how relationships between married couples are likely to survive longer than relationships between partners, particularly when children are involved. If commitment is at the heart of this then l guess that it is the reason many families agonise about whether the partner of the blood line relatives should be able to access the benefits of being part of the family business – whether through employment or dividends as a result of shares held. The arguments for and against are summarised below: Of course it’s a no-brainer that a spouse should be part of the family business Not in a million years, I don’t want to dilute my legacy outside of my family · Strong message that spouse is part of the family · I have built this business for my children; the risks of marital breakdown are too high · Tax efficient way to distribute income · Buying back the shares is potentially difficult with a negative impact on cash … [Read more...]
Financing the Retirement of the MD, or a Major Shareholder in a Family Business
Planning the retirement of the MD or another major shareholder in a family business is often an emotional, complex and time consuming affair. It is normally, but not always in the case of death, a long term project spanning a number of years. The challenges and risks are often more intense in a family business than in a non family one and these have already been discussed in previous blogs in this series. One challenge that has not been discussed is how does the family business plan for this important liquidity event, without seriously damaging the company’s cash flow and profitability? The MD or major shareholder will need to finance his or her retirement and the company needs to carry on trading with the possibility of a major capital withdrawal damaging prospects. The best solution for the business is for the incoming or promoted family member to purchase the shareholding plus potentially a portion of goodwill of the exiting member, with new capital from his/her own outside … [Read more...]
What is involved in succession planning in a family business?
This may sound an obvious question yet my experience of family businesses is that many business leaders don’t know how to get started with succession planning or they view it as a single event rather than an on-going process. There are three main processes involved in succession planning: Identifying and appointing a successor Managing the exit of the current MD Managing change from both the family and business perspective Identifying and appointing a successor This is the first stumbling block and where the family and business systems can collide. In a family business the hope is that a family member will be sufficiently interested and qualified to take over the reins. Depending on the experience and skills the family successor has, there may be the need for coaching, mentoring and accelerated learning to equip the successor to take over the reins. This may take up to two years as responsibilities are handed over in such a way that business continuity is … [Read more...]
Why family businesses might consider putting governance structures in place
The buzzword of recent years is professionalising the management of family businesses. Not only does this mean appointing talent at the top of the organisation be it management or having a NED to advise and seek counsel from, it also means confronting the way families manage the business. Family businesses represent the merging of two systems – those of the business and the family. The drivers of the two systems are different. Business is about taking risks as opportunities present themselves. Families operate differently – often it is about maintaining harmony and so being risk averse. Problems occur when the two systems collide. This is where governance structures come in – to assist families manage the predictable problems. Some predictable problems l have come across are succession, dealing with conflict between family members, dealing with underperformance by a family member, employing family members (or not) in the business. One aspect of a governance structure is the … [Read more...]
5 things to do to ensure successful transition in the family business
In many recent surveys[1] nearly half of family businesses intend to pass on their business to their children, less than 44% have put a formal succession plan in place. In this blog we summarise the 5 things to do- following up in more depth in successive future blogs. Have family governance structures in place Transitioning management and ownership in a family business is a time of great change creating opportunity and uncertainty in equal measure. Governance structures formalise the way businesses are managed and delineate the separation between family and business. Yet family governance is one of the issues many families seem to be reluctant to address because it forces them to confront major changes in the way they manage the business. Consider a family business that has a family council, which is used to meeting twice a year to discuss how the business is doing from a family perspective. At one such meeting the father announces that he wants to retire in 5 years’ … [Read more...]
