Why Family Businesses Are Different

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Why Family Businesses Are Different

Aug 05, 2022

A balance of interests

Family businesses work well when there is a balance of interests. Although this balance can appear stable, it can never be static: things change. Family members grow older, make career choices and make life choices, business activities move forward. When things change, it is normal for a family business to adapt as little as possible and cope rather than to make any real change as this can often feel too risky, “if it ain’t broke…”

An example of this is when a family member wants to join the family business but is not actually welcome. Rather than use this to start addressing succession issues, families tend to compromise and find a job for the incompetent brother or cousin, telling themselves that they will deal with it another time.

As the family business becomes more complex over time, ownership fragments as it passes down the generations and this can lead to misunderstandings – “I thought my wife would get a job” and unfulfilled expectations – “I thought everyone would get an equal share.”

When it gets to the point that a family business can no longer move forward by replicating the past, a new balance of interests need to be created. At this point, an advisor can help the family work through the challenging issues.

Most families are going to have to deal with some conflict along the way. In every family business there are a number of people with important stakes making demands for limited resources – there is only so much time, love, money and work in a family business.

Family businesses involve constant trade-offs in pursuit of a balance of interests. The example above of the incompetent family member being given a job is one. The family’s desire to provide employment for each other and keep everyone happy comes at a cost to the business. There is also the risk of that family member feeling out of their depth, which in turn may cause stress and negative behavior.

The family need to sit with their advisor and understand the bigger picture. The family business is a circuit board of anxiety and conflict will break out when someone feels that his situation is no longer tolerable. This can happen, for example, when the senior generation continue to postpone succession planning to the point where the next generation start behaving in a way that the senior generation then finds alarming.

Any intervention based on the view that conflict is down to one individual will not resolve the issue. The advisor needs to help the senior generation understand that the next generation is at a stage of life when they need to know what is happening in order to put in place plans for their own lives. The senior generation can be tempted to ask the advisor to “have a word” with the next generation in the hope that things will continue as they did before because they are not ready to move on. Even if the next generation agrees to put up with the situation for a bit longer, the risk is that the situation becomes so intolerable, the next generation leaves to pursue their career aspirations elsewhere.

Family businesses are unique and require specialist advice. When it comes to succession planning, a skilled advisor can make the difference between a workable plan that everyone is comfortable with and ensures the business is successfully passed down to the next generation and a temporary fix that appeases one generation but frustrates another.

Putting off business succession planning is the worst thing you can do. It doesn’t happen overnight and you need to have a plan that ensures that you can retire comfortably and that the business you have built continues to thrive in the hands of the next generation’

To contact Debbie call 01465 713 118 or email debbie@mckinstry.co.uk