| Anyone who has started a business, especially a family business knows the trials and tribulations you go through to maintain and thus hopefully succeed. After years of hard work, you’ve built the family business into a great success and you take pride in meeting the challenges that each day brings. At some point, the day arrives when it is time to turn the reins over to the next generation. That can be an exciting moment or an anxiety ridden one, depending on what has gone on before to prepare for the momentous occasion.|
Henry Hutcheson, President of Family Business USA has written a book on just such a dilemma, titled “Dirty Little Secret of Family Business: How to Successfully navigate Family Business Conflict and Transition.”
Hutcheson notes key strategies for success for family business followed by developing the right person to take over the family business.
Starting with success strategies he explains:
1) Keep the lines of communication open – Schedule regular family meetings to discuss issues of concern and topics such as business transition, business performance, and responsibilities. Include all family members, no matter where in the hierarchy their jobs fall – exclusion creates animosity. Create a family manual that lays out the ground rules for how the meetings will take place to ensure everyone gets a chance to be heard and impediments to communication are left at the door.
2) Assign clear roles and responsibilities – As a family member, it is natural to feel that everything is my business. However, not everything is every family member’s responsibility. Job definitions prevent everyone from jumping in to tackle the same problem, and help ensure the business runs smoothly.
3) Keep good financial data – The downfall of many small businesses and family businesses is not having solid data. Have a single point of contact to manage the finances. If you are small enough, you can rely on a family member. Otherwise, you will need to bring in a qualified accountant. You many cringe at the cost for this, but the difference between a good accountant and a bad one is the difference between knowing exactly where you are on the road and trying to drive with a mud-covered windshield.
4) Avoid overpaying family members – Market-based compensation is fundamental and essential. Parents in family businesses tend to overpay the next generation, or pay everyone equally despite differing levels of responsibility. Both are bad practices. The longer unfair compensation practices continue, the messier it will be to clean up when it blows up.
5) Don’t hire relatives if they’re unqualified – Competence is key. Family businesses are a conundrum. The family aspect generates unqualified love, while the business side cares about profits. Thus, family members will be hired to provide them with a job, even though they are not qualified. The remedy is to get them trained, move them to a role that matches their skills, or have them leave. Hutcheson says there are four key ingredients to developing the right person to take over the family business:
1) Independence – Next generation leaders must have confidence in themselves, their thoughts and their beliefs. “ Much of this can be developed while working in the family business by constructing and leading significant projects”, Hutcheson says. But one shortcut to accomplish this is to work for some other company early on. Many multi-generation family businesses like to make that a requirement for family members.
2) Competence – This is more than just being able to do the work. It means developing bottom-up experience. Not just being the accountant, but being able to reconcile the accounts and perform the journal entries. Not just being sales and marketing manager, but having been on a quota and worked the trade shows. Experience doing some of the day-to-day grunt work can pay dividends down the line.
3) People skills – “It’s not enough to just be smart and confident”, Hutcheson says. “You need to be able to work with people.” Those who were able to perceive the emotional state of others and react to it appropriately proved to be the most successful.
4) No special privileges – The person in line to take over the family business needs to be willing to show up to work on time, stay late, take on special projects and be measured by the same metrics as everyone else. “ This will show that you are part of the team and that you want to be judged on the merits of your work, not your bloodline,” Hutcheson says. It will also help the next generation gain the respect of co-workers.
For further information on Henry Hutcheson book contact–http://dirtylittle secretsof familybusiness.com
Those of us in family businesses or those in small business start out with gusto, hopes and dreams. As we progress we sometimes get caught up in all the muddle of things. You have to step back once and awhile and take in your surroundings. When we reach the point of turning over the business, we have several options, pass it on to the next generation, sell the business or just simply close the doors.