Family businesses require special handling to succeed

 

jcassel@casselsalpeter.com

One of the greatest challenges of running family businesses is that they contain, well, family. Based on my experience working with and being a part of family businesses, I’ve learned that success requires everyone to work together harmoniously and as if they are not related.

This can sound difficult, particularly for parent-child or husband-and-wife teams, but it’s possible if everyone agrees upfront to set aside their egos and family relationships, roll up their sleeves and work toward a common goal of ensuring the business’ success. How can you do this?

It is important to recognize that your issues are probably not unique and you can learn a lot from others. Currently, family businesses comprise 90 percent of all business enterprises in the U.S. and 62 percent of total U.S. employment, according to the Small Business Administration. So take advantage of the vast knowledge, tools and other resources available today by working with consultants and business coaches who specialize in helping family owned businesses. This is a good idea for non-family businesses as well.

Having seen the good, the bad and the ugly when it comes to family businesses, I can offer some practical advice:

• Put in place the right employment policies and job responsibilities, including detailed job descriptions and goals, and enforce them consistently. Get buy-in and support by reviewing the policies with everyone.

• Routinely measure performance. Employee evaluations are helpful. Hire a non-family Human Resources Director or business coach, for example, to lead the evaluations and approve things like salary increases and vacation time. This can also help with family members who need to be fired.

• Put outsiders in positions of power. Smart business owners have independent boards of directors to give advice and often put non-family members in management who have no allegiances to anyone in the family. It is wise to employ non-family members with the strength of character to stand by their convictions and focus on what’s right for the business. This helped one of my firm’s clients when she had to make decisions that contradicted the wishes of her mother, who was a silent investor.

• Establish a clear chain of command for everyone to follow. In addition to helping reduce the likelihood of people feeling entitled to special privileges and abusing their family ties, it also helps other employees feel more comfortable with their jobs when they know the same rules apply to all. Giving family special privileges will cause problems and tensions among others and possibly undermine the success of the business.

• Reward results rather than genetics. Some of the people who matter most to family businesses – including employees, clients, referral sources and even potential buyers of the businesses – often assume that the business owners give preferential treatment to their kin. For a business to be taken seriously by all parties, everyone must believe its run fairly and with the best interest of the business at heart.

• Don’t hire your children unless they have sufficient interest and aptitude, and don’t give them too much responsibility too quickly before they have proved they’re ready. When there are problems with children, face them head on. It’s also wise to encourage your children to get experience working at another business before joining yours. My son, Philip Cassel, for example, acquired good training and experience at two other firms that made him a stronger asset when he joined Cassel Salpeter.

• Invest in employee education, including training related to people skills and communication.

• Be careful what roles you give your family members. What happens when your relative keeps the company’s books? To outside observers, including potential buyers of your business, this can create misperceptions and concerns. It’s always smart to have outside accountants review or audit your books.

• Over-communicate. Family dynamics can infuse unnecessary emotional drama. Maintaining clear, open communications channels can help neutralize touchy situations.

• Develop succession plans. Data from peakfamilybusiness.com show that only 30 percent of U.S. family businesses will successfully pass the reins to the next generation, despite the fact that approximately 70 percent of those surveyed said they would like the business to stay in the family. Almost half of the U.S. companies surveyed had no succession plans and, by the third generation, only 12 percent are still viable. It’s critical to work with experts, such as attorneys, coaches and investment bankers, to develop customized succession plans. Don’t wait until a crisis strikes – by that time, it’s usually too late. I’ve seen too many families end up in court fighting over things that could have been discussed amicably in advance.

• Show your love. Although you should forget family ties when you’re working, you should take time out of the office to nurture your family.

For family businesses, it’s important to be realistic about the potential challenges and put in place the right systems to mitigate them. A little planning now can go a long way toward ensuring long-term success – and happy family relations for all.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. www.casselsalpeter.com

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