14 September 2021

5 biggest challenges of family businesses

Services:

Expansion & Improvement

Family businesses are the bedrock of the UK economy. In 2019, family businesses made up 86.2% of the UK private sector, making family businesses far and away the most common business type. But when you’re part of a family that runs its own company, the path to success isn’t always entirely free of pitfalls. There are certain specific challenges that a family business will face – and overcoming these hurdles will require the right experience, expertise and advice.

Jane Wills talks about the need for good relationships and robust preparation, and how her own experience of working in a family business has increased the depth of advice she can offer.

 

Understanding the family business challenges – from both sides of the fence

Prior to joining Haines Watts , I worked in two different family-run accountancy businesses with different members of my family. So, I have plenty of first-hand experience of what it’s like being in a family business, and what it’s like being an adviser to one. I’ve seen things from both sides of the fence – and that’s definitely given me a really deep insight into the potential challenges.

It’s been a tough 18 months for the whole business community, but I don’t think family businesses have responded differently to Covid than the average private business. Many of the big issues faced by a family business are perennial challenges that have been around for centuries – and certainly well before the pandemic.

 

1. The third-generation problem

First off, there’s the third-generation problem. The first generation of a family founded business runs with a great business idea, works hard and gets the company off the ground. The second generation grows up seeing this hard graft and takes on a business with a good reputation and does their best to continue the company’s success and growth.

The sticking point is the next generation. The third generation will only have ever known a successful business and won’t have witnessed the hard times and hard work firsthand, meaning that they don’t necessarily have the same drive and understanding of the challenge. Generally, this results in a gap between the work that the third generation puts in and results that come out.

That isn’t always the case, of course. Some third generations can work wonders for their inherited business. But the third-generation problem can happen, leading to a slump in the fortunes of the business and a gradual slide into failure.

 

2. Dealing with family relationships in the workplace

Secondly, there’s the challenge of family relationships. How you negotiate family relationships is important when you’re a member of a family business. You have to wear two hats – the business hat and the personal family hat. Keeping these two sides compartmentalised is absolutely vital and can be extremely tricky to do.

You have to treat your family members as if they are other employees. Anyone coming into the business from the family will always have to work harder to prove themselves and to overcome any claims of nepotism. In my own experience, that meant having to treat my father or father-in-law as a business colleague during business hours and sticking to that very strictly.

You can’t start chatting about how the grandkids are doing while rounding up a business meeting. And you also need to be sure that you aren’t talking about business matters in the family home, as not everyone in the family will be in the business. Navigating these family relationships is a big challenge – but can make a huge difference when you get it right.

 

3. Proving yourself as a valuable family employee

Coming into the business can be hard as a family member as you have a certain stigma attached to you. You have to work harder, work smarter and prove that you can do the job.

I did all my training as an accountant in a third-party business. But I had to prove to the people in my family’s accountancy businesses that I could do the job. There’s that extra challenge and extra layer of how the culture works. And also the way in which the family treats each other and non-family members of staff during business hours and non-business hours.

For example, you can’t start making major business decisions at the Sunday dinner table, where skilled non-family members of staff won’t get a say in these decisions. During a family meal it’s easy to start discussing business, but you must be disciplined and put these things in the appropriate silo.

 

4. Being immersed 24/7 in the business

With a family company, there’s also the challenge of constant 24/7 involvement in the business. You can end up never getting away from work, and we all know how destructive to our wellbeing that can be, especially now we’ve all been through lockdown and the pandemic.

Mentally, you need that down time to refresh yourself and have a change of scenery away from the business. Again, it’s about having that discipline to be compartmentalised. When I worked with my in-laws, I always agreed to not talk about business outside of the office. And that worked so well, giving us time to ‘switch off’ and reset.

 

5. Following the right cultural rules and guidelines

There are definitely positives of being a family member in a family business. As a working mum, saying to your in-laws that you can’t come in because your kids are sick is so much easier than saying it to your boss in a private company. But you do need to be clear about these things. There’s no manual or handbook telling you how to behave in a family business. When you think about the relationships in any working environment, there are certain behavioural rules that apply. In many ways, it’s no different being in a family business.

The difference is the closeness of the relationships and the overlap between the business and personal sides of things. If you can silo those business and personal relationships that makes business life easier and makes family life easier too. It’s about respecting boundaries, knowing when it’s appropriate to talk business, and when it’s time to take the company hat off.

 

Partnering with a trusted and experienced adviser

As you can see, there are certain family, cultural and business challenges that are likely to raise their ugly head in any family business, but these needn’t hold you back.

Having a trusted adviser helps. We can be a good sounding board and someone independent from outside the family who you can talk to. It may well be that a family member who joins the family business doesn’t have the full skills when they first join, so an advisor can help to bring them up to speed. And a good adviser can also share good practice from other businesses, updating you with the latest management skills and financial governance.

For me though, the key value we bring as an adviser is our objectivity. As an adviser, I’m not an employee, and I’m not in the family, I can bring a wholly independent point of view to the table. We have no stake in the business, so we can offer truly independent and objective advice.

 

Your family and business adviser, rolled into one

As advisers, we’re part accountant, part counsellor and part therapist, especially over the past year and a half. We can cherry pick the best options and boost your family’s confidence when dealing with the common challenges. In any relationship with a family business, I have to be a dispassionate sounding board and not take sides. It’s about being a diplomat, really.

I try to get under the skin of every new client, both in a financial, cultural and relational sense. That helps to frame the advice that I can give. That’s even more important in a family business. You need to know the relationships, the undercurrents and the politics.

I’m the GP of my clients, really. Someone they trust and who they feel comfortable opening up to. With that openness we can get to the heart of the issues and find the right remedy.

 

If you’re a family business and in need of a good adviser, we’d love to chat with you.

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