In this blog we look at overcoming barriers to growth and agreeing strategies that every member of the family can sign up to.
The continued health and wealth of a family business is embedded in forward planning, anticipating risks to the business, overcoming barriers to growth and agreeing strategies that every member of the family can sign up to. In many cases, however, this is easier said than done.
Unlike other business structures, the family business will have its own dynamic at work which incorporates a raft of cherished shared values and aspirations as well as a potential source of conflict as the complexity of family relationships impact on decision-making and the long term success of the business. In other words, family and business can be two very different and conflicting systems trying to work together.
Disputes in any business take their toll. Customers can get caught in the crossfire and employees are remarkably adept at spotting the symptoms. Sales, profits, cash flow and morale may suffer. This is compounded by emotional connections bringing an added layer of complexity to the boardroom meaning that conflict can arise for a whole host of different reasons.
These can range from feelings of resentment or entitlement, personality clashes, fear of change, reluctance to share information, financial disagreements or disagreements over whether to invest in the business or take dividends. The stress placed on family relationships can be the source of endless issues that hamper planning and growth. It can be equally stressful for individual family members and it is a mistake to underestimate the mental pressures of daily work and home place strife that many undergo.
Family tension arising from any source can make a family business difficult to manage and restrict its growth. It can have a damaging impact on decision making, planning, profitability and the long-term sustainability of the business if it is not managed correctly. Indeed, a breakdown in communication within the family can result in time and effort being wasted in managing relationships rather than focusing on the business and growing the family wealth.
So how can we prevent family businesses getting to this stage? And how can we help if they are already there? It is important to ensure you communicate effectively. By agreeing and implementing formal policies and written frameworks from the outset, tensions will be alleviated before they can develop into an issue.
Many families will still be capable of working out solutions through internal dialogue, although it is not uncommon that they will need to seek outside help from time to time, especially if the same arguments keep going round in circles to no-one’s satisfaction. Poor communication is often a root cause of conflict in family businesses. Family members will discuss matters at home or at family occasions and these informal conversations are often subject to different interpretations and recollections. Minuted communications, on the other hand, will allow a sound basis for reference and future action. It is good practice to get clarity of rights, roles and responsibilities as early as possible.
Ways to formalise communication within the family business include:
- Shareholder agreements – a contract between the owners of a company that defines their roles, rights and obligations as shareholders in the company. This document will protect an individual’s interest in a company and create rules for how a business will deal with any disputes between shareholders.
- Family councils – a governance system that is the strategic and organisational planning arm for the whole family. Relevant for any size of business, meetings will articulate values, formulate direction and policy, and oil the wheels of family communication.
- Agreeing a process for settling disputes before they occur – it is important to deal with small disagreements and grievances early before they develop into a more significant issue.
It is rare to come across a business where conflict never happens but in family businesses, emotional factors are almost always part of the issue. Bringing in independent advisers can help manage this process, facilitate solutions and build bridges.
Family Business Connect is our business review service which examines all of the factors, including recognising, minimising or avoiding conflict and tension, helping to properly plan and unlock your business’ full potential.
To begin to look inside your business with a little more clarity and confidence, now and into the future, get in touch with one of our Family Business advisers at PKF Francis Clark and arrange your initial Family Business Connect Review.