By Jean Kruse / Guest Editorial
According to the U.S. Small Business Administration, family businesses comprise 90 percent of all business enterprises in North America and 62 percent of total U.S. employment.
So why are there always so many warnings about going into business with relatives?
Although some examples of imploding family businesses have been exaggerated, operating a business with a spouse, parents, siblings, children or other family members does pose some unique risks above and beyond those of non-family enterprises. The dynamics and emotional ties among family members can influence what they do and say, making it difficult to criticize or discuss certain topics.
On the other hand, the same connections that create a happy family can also add an extra dimension of loyalty and commitment, which can help a small business achieve higher degrees of success.
One key to laying the foundation for a successful family business is making a commitment to communication from the very start. Make sure roles and responsibilities are well defined, particularly for those coming into the business as investors. Conduct regular meetings to assess progress, share information, air differences and resolve disputes.
Many small businesses start out with only family members working in the business and with no non-relative employees. As the business grows and employees who are not family members are hired, problems may surface if the roles and responsibilities are not clearly defined and communicated to those new hires.
If an employee is given two different work projects by two different family owners and both projects are urgent, which one should they tackle first? If the employee is told a procedure should be handled one way, but another family owner explains it differently, how should they proceed? Without answers to scenarios like these, confusion and stress will follow.
It is important to communicate the chain of command with new hires, especially in very small businesses where, prior to hiring outside employees, the chain of command may not have been necessary, simply because everyone did their own job.
According to Frank S. Schneider, a CPA and organizational consultant based in Denver, Colo., many small business owners “cannot get their employees to work as a team. The problem, however, is that these same business people do not know what teamwork really looks like, much less how to achieve it” because “teamwork wasn’t really an issue” until they began hiring outside employees.
Schneider insists that trust and respect are key aspects of teamwork, and makes several recommendations about how a family business can develop teamwork skills. First, the business must set common goals and let all members of the team participate, including non-relative employees. Second, the owners must encourage “communication, collaboration and coordination.” Finally, they should establish a reward system “for team performance, not just for individual performance.”
Another key to ensuring your family business will succeed is to leave business issues and discussions at work. Don’t bring them home or to social settings. This is important even for non-family businesses. It’s refreshing to devote some time to yourself and your family, even if you will be seeing them again at work the next day.
Don’t treat family and non-family employees differently. Your business’ pay scales, promotions, work schedules, criticism and praise should be documented and administered fairly. And make sure non-family employees have the same access as relatives to managers for questions or problems.
Problems and differences of opinion are common in a family business, so it’s important to continually keep in touch with each other. Weekly meetings to assess progress and resolve disputes work well for many family firms.
One of the biggest communication-related issues arises over succession. According to the Family Business Institute, only about 30 percent of such businesses survive beyond the founder’s generation, and just 12 percent make it to a third. Many potentially viable businesses have dissolved because of disputes and assumptions over who would take charge. That’s why it’s important to have a succession plan in place, and make sure all family participants are aware of it.
To learn more about operating a successful family business, contact SCORE at www.scorecr.org and request either a face-to-face or an online mentor. SCORE volunteers provide free and confidential business mentoring to and training workshops for small business owners.
Jean Kruse is a SCORE counselor and SCORE Iowa district president. She operated her own CPA firm for 13 years and in 1988, joined RSM McGladrey, a national firm, where she provided accounting and tax services to small businesses.