Factsheet

Managing a family owned business

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Running a family business is similar to running any small business. However, there are certain issues that are specific to operating a family owned business.

Some common problems that can occur in a family owned business include:

  • Arguments over daily operations
  • Differences in opinion about dividing and spending the business’s profit
  • High turnover rate among non-family employees

FAMILY TENSION

Different opinions do not always produce disagreements, but the emotional relationships between family members can make it hard to make objective decisions.

Some ways to handle family tension in your business include:

  • Agreeing on a process for settling disputes before they occur
  • Hiring a mediator

MANAGING THE BUSINESS

If a member of the family is in charge of operations, he or she should be able to negotiate between family members to make the best decisions for the business. In some cases, you can achieve more objective control and oversight in a family-owned business by hiring a manager who is not a family member.

With either option, the roles and responsibilities for all employees, including family members, should be clear, and the manager's authority to suspend or discharge any staff member that violates company rules should also be clear. Fairness is very important in a family company, and management will be ineffective if special allowances are made.

SUCCESSION PLANNING

Succession planning is an important issue to consider for any small business. Consider who will take over if something happens to the family member who owns or manages the business. A strong succession plan can guide your business through a change in management, and can help you avoid conflict.

HIRING RELATIVES

One of the most common issues in a family business is the pressure to hire a relative. The emotional aspect of family relationships can make it difficult to refuse the request. Try to make the decision based on what is best for the business and not on emotional connections.

If you do hire a family member it should not affect the relationship that you have with other members of your staff. Hold relatives to the same standard as non-family employees.

PRESENTING NEW IDEAS

When presenting new ideas for business improvement, particularly where spending is involved, base your information on facts to provide an objective perspective of what is best for the company. Family members can then make an informed decision based on concrete information.

You can also hire a business advisor. Relatives will sometimes accept the credibility of advisors - such as bankers, accountants or lawyers - when they won't accept your judgment.

Paid consultants can also help confirm the value of expenditures for the business, and can devote additional time and effort to specialized projects that could require further research.

DIVIDING PROFITS

Paying family members and dividing profits among them can be a difficult task. Many people feel that they are underpaid, but what do you do when relatives are unhappy with their share of the profits?

If the business is a small corporation, certain equalizing factors can be accomplished by using stock dividends, or recapitalizing the company.

Providing competitive salaries is another way to ensure that profits are being divided fairly. Find out what local salary ranges are for various jobs and use these ranges as a guide for paying both family and non-family personnel.

Benefits like deferred profit sharing plans, pension plans, and insurance programs can also be used to divide profit. Providing benefits can satisfy family members and help them build their personal assets.

After you decide on a method for dividing your business profits you may want to consider writing it in a formal agreement. The document will help:

  • record what was decided 
  • set expectations
  • make the process easier in the future   

STAFF TURNOVER

Some family-owned companies have trouble with high turnover among their non-family employees. An exit interview gives departing employees the chance to explain why they are leaving, which can help you understand why turnover is happening. Once you know what factors are affecting turnover, you can take steps to address them.

Remember, running a successful family business requires that you treat the business like a business.

(Source: Canada Business Ontario)

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