Family Business: Challenges and Opportunities

 Maintaining wealth for future leaders and ensuring the success of your family business can be achieved via efficient planning and governance.

Family companies have several benefits, including stability and agility that make their rivals green with envy, a shared sense of pride and achievement, and family values and traditions.

Nevertheless, everything has an opposite side. Any family business's aspirations for expansion and efficient operation can be hampered by family strife, communication problems, and accusations of favoritism from non-family employees. These are five typical family business pitfalls and how to avoid them to keep the business and, more importantly, your family cohesive.

The EY Family Enterprise DNA Model explains how EY can assist your family.

One of the main challenges facing a family business is how to establish a governance structure for decision-making and plan for succession as families become more numerous and complex.

Continue reading1. Be open about succession Perhaps the biggest obstacle facing a family business is succession. It is imperative that family business owners plan ahead for succession and take the necessary actions to make sure their objectives are clear and known to the entire family. A family business's ability to survive can depend heavily on succession, particularly in cases of unanticipated illness or death or when the family is dealing with difficult emotions.

A thorough succession planning procedure can assist your organization in finding and nurturing executive talent to guarantee the continuity of the firm and fill leadership roles with qualified candidates. You should also think about assets that might be in an estate or trust, including both business and non-business assets, in addition to management succession. Early resolution of these issues will reduce the likelihood of conflict in the future.

2. Talk about balancing job and family life.

Compared to other businesses, family businesses frequently deal with a wider range of more complex difficulties. "Family" and "business" are frequently combined to encompass a range of business-related problems and challenges, generational divides, and enduring family dynamics. Family members' emotional, financial, and personal issues can have a big influence on how the company runs on a daily basis. It is crucial to establish suitable limits. To actively manage family difficulties both on and off the clock and to be transparent about roles and duties, effective communication is essential.

3. Consider talent that is not inherited.

Managing a multigenerational family business can be challenging, and it can be difficult to know who to ask for help, advice, and expertise. Using outside expertise can give you access to a deeper pool of knowledge and experience, which will help you make better decisions.

Considering hiring outside counsel can provide an unbiased assessment of the company. Board members, for instance, can offer insightful feedback that will assist you in reassessing the business plan and prioritizing areas that require improvement. For a strong, long-lasting family business that will stay loyal to its goal and family values, this method of family business governance has shown to be successful.

4. Verify that the appropriate individuals are assigned to the appropriate roles.

It's critical that family members working for the company understand their responsibilities and place in the company. Encourage your kids to work in the area of the company that best utilizes their skills and play to their strengths. In this manner, each child will be able to focus on a specific area, operate without infringing on the rights of others, and contribute to various business operations.

Your children may not be suited for the business world or even want to run the company just because you are a business owner. Have a candid chat with your children regarding their professional objectives. Understand where they see themselves fitting into the business and don’t just assume they’ll run the company.

5. Prepare the next-generation leader

Being a great leader means understanding all facets of the business and welcoming opportunities to get educated on aspects of the business they may not know much about. A great way to set up your successor for success is to surround them with a strong support system of family members and others who offer different perspectives of the business.

Another helpful way to prepare your next-generation leader is to allow them to experience working for another company. That can give them new experiences, help them develop and enhance their skillset and increase their credibility in the eyes of those inside and outside the family business. Along with outside experience, training and education programs are critical elements of preparing successors for both ownership and leadership succession. Giving them the ability to learn from knowledgeable resources and providing the opportunity to share experiences with peers can prove invaluable.

Almost all companies start out as family businesses, but those that master the challenges inherent in this form of ownership can grow into successful enterprises that can survive across generations. Companies that implement effective planning and governance will ensure the success of their business and help preserve wealth for future family leaders.