Family businesses can be described as businesses where two or more family members work in the business and share or expect to share ownership, and have a long-term preference to pass ownership to the next generation of family members.
The challenges commonly experienced by family businesses include:
Family businesses employ family members which brings challenges that may include:
- Did they get the job just because they’re a family member?
- How to manage performance and remuneration, including poor performance?
- How is the relationship between family members and non-family members in the business managed?
Best practice is to treat a family member the same as a non-family member. The role should have a position description, KPIs and performance reviews with remuneration at market rates.
The person should be the best person for that role, rather than just finding a family member a position in the business.
Another reason for equal treatment is to ensure non-family members in the business do not perceive there to be any favouritism or nepotism.
Governance is the way a business makes decisions and communicates and implements those decisions in the business.
Having systems in place to deal with complex issues for the family and the business is crucial for the business to be successful.
Good governance systems are transparent and provide accountability. For a family business this could include:
- A well-structured board of directors and even an advisory board.
- A family charter – a document that sets out ‘rules’ for family members involved in the business.
Transition of management and succession of ownership are critical issues. Whether the business is in its first generation or fifth, this is not an easy process to go through.
Too often business owners delay thinking about succession. Succession is not always planned, so business owners need to consider what they really want to happen for the future success of the business and the family’s interest in that business.
Having an outside professional can assist in this sometimes difficult process.
HLB Mann Judd provide accountancy and business and financial advice.