Family owned businesses, when run correctly by the right family members, can be wildly successful. But when they’re dysfunctional, family businesses can be a real nightmare for everyone involved – and even destroy families and their financial well being.
There’s no question that our own flesh and blood can offer a level of loyalty, trust, commitment and vested interest in the business’ long-term success that’s not usually given by those who aren’t our family. On the flip side, things can quickly get ugly with family members who feel jealousy, resentment, entitlement, greed and other emotions that can get in the way of sound business judgment. When problems occur, the more family members involved, the worse things can get. Moreover, family businesses can also chase away great non-family talent if they are not sensitive to their needs.
While family owned businesses are the backbone of the U.S. economy, many family businesses fail or are sold before the next generation has taken the reins. I watched firsthand the third generation of two families kill a business. It could have been avoided if they had been more rational or had proper legal documents in place.
Having spent decades counseling owners of family businesses in all sorts of industries, not to mention having worked very successfully in several businesses with my own family members, including at Cassel Salpeter, I’ve pretty much seen it all. Here are a few important things I’ve learned that are critical for those who want to sustain healthy family owned businesses and healthy family relationships:
1. Plan ahead. Simply put, you have to put in place the equivalent of a “business pre-nup.” Work with qualified legal and financial advisors to develop appropriate written agreements such as shareholder or partnership agreements that include succession plans and buy-sell provisions. We all know couples that have built fabulous businesses together – only to see those businesses fall apart at tremendous financial and emotional expense when they divorce. Same goes for siblings who fight turf wars after the parent who owned the family business passes away or retires, and one sibling wants to run the business while the others want to sell or take out money. Too often, these matters end up in court because people failed to plan in advance. It’s important to have plans in place when dealing with family so everyone knows where they stand and agrees in advance to what can and cannot be done.
2. Communicate. In fact, over-communicate. Most families don’t do this very well or often enough. It becomes difficult to handle issues because the family members don’t know how to discuss their opinions, reach consensus and make decisions efficiently. So talk it out. Lack of communication is one of the main causes of litigation and failure in family businesses.
Need help? There are plenty of business psychologists and coaches who specialize in helping family businesses. Don’t wait until things go wrong to consult professionals.
Years ago, a couple contacted me for advice regarding their plans to sell their business. Although they had spent years grooming their very capable son to eventually take over the business and he was doing a great job, they decided to begin entertaining buyout offers without consulting him.