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Ensure family business does not fail for family reasons
“FAMILY businesses generally fail for family reasons” was a key comment that emerged from interviews with over 2,000 family businesses as part of PwC’s 2014 Family Business Survey. Why is that and what can be done to avoid it?
Chris Ward, Private Business Adviser at PwC in Milton Keynes and the South Midlands, looks at measures that can help to avoid such a scenario.
While the survey found that nearly three quarters of family businesses reported growth and 90% look to expand in the year ahead, global megatrends like the digital revolution are making the business landscape more volatile and competitive than ever.
Family businesses are well aware of this, and are sharpening their businesses in response. They’re installing new IT systems, streamlining processes, beefing up boards, and hiring the skills they need to professionalise their operations.
But as the Family Business Survey shows, professionalising the business is not enough. The crucial issue is to professionalise the family and the firm - the ‘heart’ and the ‘head’.
Family firms need to address every aspect of the way the family interacts with the business and holds its managers to account.
This means putting a robust framework in place to govern the family’s interactions with the business, covering everything from decision-making, communications, dividend policy, to succession planning. Here are some thoughts on a roadmap to help the family be the strength behind the business not the weakness.
Review current governance
Governance should be regularly reviewed to ensure it is fit for purpose and firms should assess channels of communication, decision-making structures and how the family members interact with each other and the business.
Discuss and agree future plans and intentions
Having open discussions and agreeing broad parameters for the future of the family wealth, the business and the family’s role is key.
Define family roles and accountability
Putting processes in place to govern how the family interacts with the business can protect the family’s interest and safeguard the firm’s survival. It is therefore important that family roles, decision making processes and accountability are all clearly defined.
Create a conflict management policy
Working with relations can generate much higher levels of trust and commitment, but can also lead to festering resentments and open conflict as the individuals concerned struggle to separate ‘head’ and ‘heart’. Make sure mechanisms are in place to deal with conflict and that they are fit for purpose.
Plan for succession
A plan that is not written down is just an idea, and this is an issue family firms must address with the same commitment and energy they devote to professionalising other aspects of the business.
Three key issues came to light in our survey: generation gap, credibility gap and communications gap. Therefore a successful succession plan should openly discuss and set out guidance around future leadership, involvement of the next generation, how the older generation retain a positive influence, and development and mentoring of the next generation.
To read more about PwC’s Family Business Survey, visit www.pwc.co.uk/yourbusiness.
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