With 50% of small businesses folding after 5 years, you want to do everything you can to build stability. And if you run a family business, there are extra considerations to keep things running smoothly. Without the proper safeguards, you run the risk of creating internal resentment that can hurt your business — and family.
What strategies and structures should you have in place? Keep reading to learn how to effectively manage a family company.
Determine Your Mission
To manage a company, you need to know what you’re striving to achieve. Before you can delegate responsibilities or review reports, establish a mission statement. This should be part of your business plan and inform all decisions.
In your mission statement, explain what your company does and why it’s important. Explain what you’re contributing to the world. And include statements that show why your product is better than others on the market.
For example, you might use a secret family recipe that’s been passed down from older generations if you run a restaurant. If you’re in manufacturing, mention the sophisticated technology that you’re using. Or you could talk about how you run an eco-friendly business.
Define your audience, too. What market are you hoping to serve with your product or service? Doing this will set up parameters that help guide your marketing strategies.
Define Roles Clearly
One of the best management strategies is to spend time clarifying roles within your family business. Otherwise, you risk creating a hostile environment. It’s far too easy for power struggles and territorial behavior to define a family company.
If you have clear boundaries and duties, however, you can avoid these pitfalls. Start by identifying the key components of every job and title.
Each position should have a job description that includes tasks and the scope of work. Also, include the reporting structure, job functions, and skillsets needed.
Map out details like salary and benefits, too. Just because you’re running a family business doesn’t mean you should overlook raises and bonuses. Your total compensation should be competitive with what similar businesses are offering.
To keep your business thriving, account for cost-of-living increases and merit increases. Offer other incentives, like wellness perks. These can entice younger generations to stick around.
And remember that taking the time to define roles also contributes to a more efficient company. When everyone knows exactly what is expected of them, they won’t waste time on the wrong projects or problems.
Create a Governance Structure
What happens when the family member who founded a business retires? Who will take over, and how will other roles shift? Unless you have mapped out a plan, these questions can become divisive ones.
Make sure you work with your family members to create a governance structure. And make sure all decisions that come to a vote within the family have a tie-breaking method in place.
Consider family members, like children, who don’t hold positions within the business. Should they profit from the business?
There are some good strategies in these situations. For instance, look into providing non-participating family members with a smaller income stream from the business. By doing this, you’ll truly keep your business family-focused.
It doesn’t hurt to reach out to a third-party resource during this process, either. Qualified consultants can help you map out a succession plan, draft a family constitution, and create a communication plan. You can sidestep contentious conversations and arrive at a clear solution.
Put Everything on Paper
When working with family members, don’t assume you can keep things casual. Just as you would with any other business, maintain a level of formality — and put everything on paper. That includes a family constitution as well as contracts.
With your family constitution, outline your shared vision for the company and its organization. This helps to ensure that all decision-making processes are equitable. This document also provides a central source when there are disagreements over ideas or decisions.
And, ideally before going into business, you should clarify your shareholder plan. This document should be a binding agreement. Your plan can specify family relationships and list financial allocations.
Focus on Effective Communication
Finally, don’t overlook the value of clear and constant communication. Maybe you’re running a family business where your siblings all have a financial stake. If so, include all of them in memos, emails, and meetings.
For new businesses, consider holding a weekly standup meeting to offer quick updates. For bigger businesses, hold quarterly meetings with board members or other leaders.
Be prepared to offer constructive feedback to family members. You may have a nephew or sibling as a direct report. And if their job performance is lagging, you’ll need to be direct yet compassionate.
Understand that not everyone communicates the same way, too. As much as possible, accommodate family members by communicating across multiple platforms. For instance, hold a conference call but then follow up with an email to all participants where you summarize everything.
Most importantly, make communication frequent. If the family company is struggling with sales, you don’t want anyone to be surprised. Instead, be transparent and work together to make positive changes.
Run an Effective Family Company
Operating a family company requires taking the right steps to ensure orderly and efficient operations. You’ll need to prioritize open communication and define your mission as a company. Plus you’ll want to map out a clear governance structure and constitution to keep your business practices fair and efficient.
When you’re ready for support to guide your family business’s future, contact us so we can help!