What is needed to run a successful family-run business for generations?
By Karen Casey, CPA, CFP, is a certified SCORE SC Lowcountry business mentor.
There are over 5.5 million family businesses in the U.S., and they employ 62 percent of the U.S. workforce, according to the Family Business Alliance. Pretty impressive, but only 30 percent survive into the second generation, and 12 percent survive into the third generation. What goes wrong?
Many business owners lead with emotions rather than the needs of their businesses. By promising jobs for the family, they may be putting family members into a role they do not want or cannot handle. The poor performance of that family member can lead to the business’s decline. Also, family members may have the same skill set as the owner. They know finance, marketing, operations, etc., so the business again suffers for not having the properly diversified skill sets.
Communication, training and an unbiased review of the needs of the business can help avoid these issues. Honest conversations with the family member as to what they want to do or have the skill sets to do, will lead to better decisions. Do not let the desire to pass on the family legacy, values, and wealth blind you to how you make the business a success. Perhaps training the family members in advance will give them the skill sets needed or identify that they cannot perform certain roles.
You may need to bring in outsiders who have that complementary skill set needed for a successful business. Understand that bringing in an outsider can be difficult, and you need to treat them with the same respect as a family member in that role.
A business plan becomes a critical tool for a family business. An honest business plan should highlight your goals regarding growth, employment for family members, using the business for retirement income, etc. Setting out your goals in a business plan will remind you of what you want to accomplish as well as develop the steps needed to accomplish your goals. While many businesses state their spouse is their closest confidant, consider a person independent of the business to mentor you and guide you through these difficult decisions and set a clear path to your goals and successes.