According to Oxford Economics there were 4.8 million family businesses in the UK in 2020, making up 85.9% of all private sector businesses.
Family businesses can benefit from shared values, loyalty and a strong commitment to building a legacy for future generations, but they can also face unique issues that could jeopardise their long-term success and security.
Read on to discover four key challenges of running a family business.
1. The difficulty of treating family as employees
Family businesses tend to grow organically, with everyone taking a role to help out, so occasionally family members might end up in positions that they lack the skills or training for.
If this poor performance is allowed to slide, it could a negative impact on both the business’s performance, as well as on the morale of any non-family staff members.
Similar issues of fairness can arise with pay, where the natural impulse to support your family may lead to salary and bonus inconsistencies between family and non-family staff, which again could undo the hard work you’ve put into the business.
That’s why it’s important to set clear expectations and guidelines for each position from the outset, formalise the roles as the business grows, and set salary and compensation based on individual roles rather than who is doing it.
2. Resolving conflict and communication issues between generations
When businesses are run by multiple generations of a family, there are plenty of opportunities to share wisdom, insight, and experiences between younger and older family members.
But working in a close-knit family business could also lead to communication breakdown and conflict.
This is not only because older and younger family members might disagree on key issues, but also because the unique dynamics of each family might challenge or override the business’s “official” power structure, and so make it much harder to reach a solution that satisfies all parties.
This is why it is so important to create a culture where asking questions is not only encouraged but expected. Seeking the impartial and experienced insight of a financial planner could also be beneficial in this instance.
3. Succession planning and the importance of impartial advice
Family businesses tend to think multi-generationally, doing the hard work now to build a legacy for future family members.
However, the succession planning process can bring up complex and highly charged issues, such as the current CEO’s retirement planning, accommodating the hopes and ambitions of family members in the business, and selecting the next CEO.
If there are no family members interested in carrying on the business, then the family might even need to determine an exit strategy and sale.
Solving these decisions purely within the family has the potential for miscommunication and conflict, which is why it is so important to seek the impartial and experienced advice of an outside party, such as a financial planner, who is unswayed by personal biases or loyalties and can offer solutions that are right for your business and its ongoing legacy.
4. Estate plans and long-term business strategy can become intertwined
As an individual, it is important to begin estate planning as early as you can. This process is crucial if you wish to:
- Ensure your loved ones don’t pay more Inheritance Tax than they have to on your estate
- Shield your assets from being depleted if you become too ill or injured to work
- Help your children and grandchildren to thrive.
Simultaneously, as you read above, you will also be required to organise the legacy plan of your business.
Together, these two essential elements of future planning can become stressful.
Fortunately, working closely with your family and a financial planner can make later-life planning less overwhelming. We can help you to create strategies that enable the successful handover of both your wealth and your business – while you enjoy the fruits of your labour.
Get in touch
If you want to find out how we could help you better run your family business or to discuss anything touched on in this article, please get in touch. Email firstname.lastname@example.org or call 01454 416653.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.