There are two rules about family businesses:
1) It's absolutely essential to separate business and family; and
2) It's totally impossible to do so.
Family businesses come in many shapes and sizes. Research shows that they have clearly defined business problems which frequently are repetitive and avoidable. Family businesses often do not achieve their full potential or fail due to their inability to handle the mixing of family and business issues. You actually can't separate them and that's where problems occur. It also depends on the family dynamics.
Why is a "family business" different from "non-family business"? Family businesses generally have a number of key idiosyncratic issues facing them in addition to those faced by non-family businesses. These key issues are like potholes in a road. It is important to be able to recognise them, be able to avoid them, and if one cannot avoid them one must assist in damage minimisation.
The key business issues can be categorised into five main headings and they relate specifically to the nature of the family business itself. Naturally there will always be an overlap, but in general the headings are:
1. Conflict between business and family values
Families can be described as warm, socialistic and nurturing, whilst businesses as cold, ruthless and hard-nosed*. Thus when the two get together, which is what happens in a family business, there is a huge potential for conflict. An example is the owner who states it is good for their child to work in the business. However, a question the family should ask is whether the child is good for the business? In wealthier family businesses the business can afford to carry a poorly performing family member, but there is no such luxury in an unprofitable business.
*This is not always true of course.
2. Funding lifestyle versus growth versus retirement
Where is the money going to come from for lifestyle, growth and retirement? Usually there is a conflict - take the money now or leave it for retirement? If it is left for later on, will there be enough to live an adequate lifestyle? An example of problems that may occur is whether the children will be able to afford to pay out the retiree(s), without leaving the business short of funds?
3. Governance issues
Most family businesses, when compared to non-family businesses, are weak in the area of governance, and this includes professional management. Surveys show that family businesses are lacking in many areas, including: functioning boards of directors (including lack of independent outside directors), formal meetings, long-term plans, management structure, performance appraisals on family members. The effect is that a business is not run as efficiently as it could have been. Whilst this may not be of great concern to the owners, that is the family, it may be of great importance to banks, possible buyers, and employee managers.
4. Leadership, management and ownership succession
Statistics show that a substantial number of business owners will be retiring in the next 10 years. They also show that few businesses have done any planning for a smooth transition apart from making a basic will. If the succession aspect is not considered (including leadership, management and ownership) it is clear that the transition will not be as smooth as it could have been. Problems that may occur include tax, sibling rivalry, interruption to the business, and litigation between relatives etc, being problems that may have been reduced or eliminated had they been attended to.
With regard to succession planning, choose one person to take over the business, even if you make enemies in the process. That's the nettle that must be grasped. Use everybody's talents to the best degree.
5. Relationship between family members
Rivalry between family members has existed from the dawn of humanity and will continue to do so. It is not different in family business, which is an extension of the family. Examples include the machinations as to who will be the next CEO, or the holder of a particular office?