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When family has to be part of your business…

By Pauline Muindi | July 1st 2020
By Pauline Muindi | July 1st 2020

Running a business comes with its fair share of challenges. When you add family to the mix, the challenges are bound to either increase or decrease, depending on your unique family dynamics. A family business is defined as a corporate enterprise that is, to some degree, owned and managed by at least two members of the same family. Family businesses, both big and small, make up about 80 to 90 per cent of all businesses globally. 

We’ve all heard how thriving businesses fell apart due to family wrangles. Perhaps this is why only 30 per cent of family businesses make it through the second generation, 10 to 15 per cent through the third, and 3 to 5 per cent through the fourth.

But these statistics, in fact, only prove the strength of family businesses. They are generally more adept at long-term planning and more passionate about the shared mission and values. According to the Harvard Business Review, family businesses are stronger financially, have higher stakeholders, live longer and are more trusted by the public.

That said, the truth is that family businesses can be messy. The usual business decisions regarding hiring, salaries, promotions, distribution and so on can cause familial resentments that end up harming the business. Similarly, disagreements sprouting from family issues can spill over into the workplace.

With that in mind, let’s explore a few common challenges affecting family business and how to resolve them:

Creating separation

Blurring the lines between work and home affairs is one of the biggest challenges for family businesses. Meetings can quickly become an avenue to discuss family issues. Family members may have a sense of entitlement that offends non-family members of the team.

To be successful, you have to find a way to create separation between family and business. For example, you can make a rule to never discuss your family issues at work. It might also help to have the key family members in different departments to avoid conflicts.

Address each other officially when at work. “Drop the use of dad, mom, sis and sweetheart in the office,” says Kathy Kolbe, the author of Business in Business: The Reality Checks for Family-Owned Companies.

Family employment policies

We’ve all heard tales of family businesses that place inexperienced and clueless family members to be in charge of departments. This is one of the easiest ways to breed resentment and demotivate non-family employees. When your employees feel that they don’t have the same opportunity for growth, you’re likely to end up with high employee turnover. Due to their inexperience, the unqualified family member might also bring chaos that translates into business losses.

For a family business to thrive, you have to create clear policies about hiring family members. For example, you can set minimum requirements for them to attain leadership roles within the company. These requirements can include performance standards, education and training level, and their demonstrated ability to handle responsibility. The hiring of family members should be in line with what the business needs. Don’t dish out jobs to unqualified relatives just because they need a job.

Some successful family businesses have found that developing a detailed family employment is a great way to minimise misunderstandings. Such clear policies tell each family member what they must do to attain a certain position.

Non-family employee turnover

A common complaint by employees in family businesses is that they don’t have an opportunity for growth. They might also feel stifled by the family culture spilling into the business. For example, when a family member is given a senior management role in the company without earning it, it can lead to the resignation of key employees who were eyeing the job.

To counter this problem, ensure that non-family employees are fairly compensated and have job security. One way to assure employees of job security is by giving them multiple year contracts.

Fair compensation

How much everyone is paid might be a source of disagreements and resentments in family businesses. When you all have an equal stake in the business, doesn’t it make sense that each of you earns the same amount?

The best way to handle such disagreements is to ensure that each person’s salary and benefits is based on what they’d be paid in a similar position in the open market. By paying extraordinarily higher salaries to family members, you’re only increasing the cost of operations and reducing your revenue. Each family member should understand that it benefits everyone to ensure the survival of the business, even if it means lower salaries.

Once you’ve determined the appropriate compensation for each person, you can evenly split any additional profits that you don’t want to plough back into the business.

Business succession

Planning for survival of the business into the next generation can cause rifts. If you’re planning to retire, your oldest child might feel that they’re the natural choice to take your place, even if they don’t meet the requirements. Your children might be opposed to your choice for various reasons.

The family employment policy will help mitigate disputes regarding succession. Have a well-defined plan that establishes leadership and succession. You have to make sure that leadership and succession choices for the business are not influenced by past events that are unrelated to the business.

If you decide to retire, it is advisable to have some level of involvement for some years. This way, you can play the valuable role of a mediator and mentor.

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