A family business can be the key for future generations
National Mom and Pop Business Owners Day brings much deserved recognition to the millions of family businesses helping to drive the U.S. economy. According to the Small Business Administration, family businesses comprise 90% of all business enterprises in North America, and 62% of the U.S. employment. Yet, only a third of these businesses in America make it to the second generation, 12% to the third generation, and only 3% operate at the fourth generation and beyond.
To keep the doors open and guarantee that these businesses stay within the family, members must be willing to work on such critical – and often difficult – issues as in-family relationships, management structure, and ownership agreements that can make or break both the companies’ operations and future success..
Baruch College professor Elisa Balabram, an expert in small business management and entrepreneurship, serves up five key tips to running- or even starting – a successful family-owned business.
1. Focus on communication
It is so important for the family members of a business to communicate well with each other. They should practice transparency, build trust, determine and agree on family and business values, and understand the members’ goals and aspirations within and outside the family business. Set up weekly business meetings, while allowing time for family issues. Create family rituals that allow for bonding, including dinners, hikes or adventures, where business discussions are not allowed. Hire a mediator to help mend relationships and reestablish trust if there are any trust issues, and difficulties communicating.
2. Understand and define roles
It is common for family members to occupy multiple positions without a defined job title. This can create conflict as there isn’t a clear leadership role, and no one knows who is responsible for specific tasks. At family business meetings, discuss each person’s role, skills and talents, and find the best fit for them. This structuring can help professionalize the business and improve everyone’s accountability.
3. Write a family constitution
The more family members involved the better, as it will give people a sense of ownership. Items to include are: Mission and vision statements; values; employment policy; sample of pre-nuptial agreements; strategies to develop the next-generation; ownership policy; family-bank and/or family venture capital funds; dividends and benefits policy; liquidity policy; who can be elected to the board of directors or join the advisory board; succession planning strategies; rules about the family council; and, information regarding the shareholder meetings.
4. Hire employees that are not family members
Add independent directors to the board. This is an opportunity to attract talent that family members may not have. Non-family employees can share their expertise and serve as non-biased supervisors and mentors to the next generation. Having independent directors on the board brings an additional sense of professionalism, and they can assist with the company’s strategic and succession planning.
5. Empower the next generation
- Set rules regarding opportunities available to family members.
- Give the next generation a chance to work part-time. Pay them market value and hold them accountable to perform their jobs well.
- Encourage them to pursue their education and career dreams.
- Allow them to work elsewhere, to gain experience and new perspectives.
- Give them the freedom tochoose their own career path, and to decide if they want to join the company full time or not.
Finally, when they choose to join the business, make sure to mentor and empower them so that they are ready to take the leadership role when the time comes.
Running a family business provides multiple opportunities for family bonding, relationship building, career growth and wealth building. On the other hand, it can be a source of conflict, resentment, and broken relationships. Besides following the above tips, also consider hiring a consultant to help develop a family plan, a strategic plan, and a succession plan to help secure the continuity of your family business.
Professor Elisa Balabram is an expert in Small Business Management and Entrepreneurship. She’s the author of Ask Others, Trust Yourself: The Entrepreneurial Woman’s Key to Success and offers business advice on her blogAskOthersTrustYourself.com.
About Baruch College:
Baruch College is a senior college in the City University of New York (CUNY) with a total enrollment of more than 18,000 students, who represent 164 countries and speak more than 129 languages. Ranked among the top 15% of U.S. colleges and the No. 4 public regional university, Baruch College is regularly recognized as among the most ethnically diverse colleges in the country. As a public institution with a tradition of academic excellence, Baruch College offers accessibility and opportunity for students from every corner of New York City and from around the world. For more about Baruch College, go to http://www.baruch.cuny.edu/.
Awesome content, ideas and tips that everyone can follow through for their family business.