10 Questions Every Family Business Should be Able to Answer

It’s easy to lose track of the big picture and get bogged down in the daily minutiae of running a family business. Here are 10 questions every successful family firm should be able to answer about their business.

Research shows that family businesses that formalize family values and incorporate them into the business have longer, more successful outcomes.These values offer a competitive strength that non-family competitors cannot duplicate and act as an anchor, allowing families to establish connections across multiple generations.

All family businesses experience conflict and differences of opinion are perfectly healthy. However, ongoing disputes can harm business operations and lead to resentment in the family. Businesses that develop effective ways to communicate and create a safe space to air disagreements are more likely to thrive over the long term.

Research shows that durable and successful family businesses have strong governance. Clear guidelines set out in family constitutions or codes of conduct are key to effectively managing business operations, dealing with conflicts, and setting the stage for eventual succession. A governance structure should establish business roles and expectations and outline equity and compensation.

Compensation in family businesses is a thorny issue since money can be an emotional subject; however, establishing fair wages is important to integrating non-family employees, attracting talent, and promoting business success. Well-defined job descriptions, compensation, and explicit promotion criteria will help ensure that all employees are paid fairly. Many family businesses separate equity in the firm from employee compensation to ensure that all family members share in business profits while fairly paying those who work within the business.

Every business faces challenges and it’s important to be able to articulate your top obstacles to success, whether they are competitive, structural, or familial in nature. For many family businesses, succession and the retirement of the current owner remain major challenges.

Business families need the ability to manage the wealth they hold outside the business. A prudent investment strategy can diversify investments to manage risk, provide a source of cash for liquidity events and help increase family wealth. Wealth management is important to the long-term health of the business because it can prevent family members from needing to take money out of the business and offer greater options for retirement.

Succession is one of the biggest hurdles facing family businesses and 80% of family businesses may not survive into the second generation. It’s important to start planning for succession as early as possible to give heirs time to grow into their roles or to start seeking non-family successors.

If you’d like to learn more about succession and how to navigate it gracefully, I strongly encourage you to attend the 2013 Bus Industry Confederation Conference, where I’ll be speaking on the topic. The conference is on Oct 27-30 in Adelaide and promises to be an excellent opportunity to discuss trends in the industry and meet some great people.

Every decision you make should add value to your business and take you closer to your goals and it’s important to share your goals with key family members. If your plans include significant growth, then your firm may need to seek infusions of capital without diluting family equity. Durable family firms usually favour steady long-term growth over short-term profits to avoid risking family wealth.

Although it may sound self-serving, I truly believe in the value family business advisors provide their clients and evidence suggests those who work with trusted advisors are more likely to prosper. Advisors can offer insight into persistent problems, arrange financing, assist with restructurings and governance, and establish a succession plan.

Family businesses share many of the same challenges and actively participating in the community can be a great way to share ideas, tackle problems, improve your work/life balance, and make connections in a supportive, confidential environment. We’re strong supporters of Family Business Australia and encourage our clients to attend FBA family forums and other member events.