Newport Board Group, a Nationwide Firm Serving the Middle Market, Issues a Briefing for Family Businesses Looking to Survive and Thrive in 2013
San Francisco, CA (PRWEB) August 12, 2013 -- A family business typically is the largest and most valuable asset of its owners. A family business owner takes great pride in the business history and the goodwill earned from customers and in its community.
Odds against long-term survival
Many families want to see their business survive and thrive in future generations. However, statistics show that the odds are against long term-family succession. Only around 30 percent of family businesses survive into the second generation.
Clarify goals and values
The starting point in thinking about the future of a family business is to look at the family’s goals for the business and the values that inform how it is run. In some family firms, employment is based at least to some extent on a sense of birth right or seniority-- rather than on merit and potential. A conflict between value systems can create family turmoil.
Hiring standards
Family members may view the importance of the family business differently. It may be important to establish standards for hiring family members—for example, only after they have had successful business experience elsewhere. Regular performance evaluations should assess whether family members are performing to an acceptable level.
Need sound practices
Whether managed professionally or by a family member, family businesses should adopt sound practices, including:
• A written business and strategic plan
• A proper management structure (including a board of directors or advisors)
• Performance reviews
• Comprehensive reporting systems
Must fund retirement
The family business needs to be able to fund business growth and personal retirement. There must be plans in place to provide for the capital needs of the company and to fund growth--while also ensuring funds are set aside for family members’ retirement.
Establish management succession
Like any company, a family business needs to have a program in writing for management succession. This can be a source of turmoil and the reason family businesses don’t survive generational transition. The issue must be addressed while there is time to get consensus on who the successor should be and train him or her. Many family firms should be prepared to consider a conversion to professional management. If professional management is brought in, they must be sensitive to the family’s history and culture and be able to work well with the Board.
As for ownership succession, a family business owner should ensure that he or she has an up-to-date will. In drafting the will, it may make sense to differentiate between “active” and “passive” family members--rewarding active members with ownership of the family business while providing passive family members with other assets.
Family business issues can be emotional and difficult. It is important that you seek advice from a variety of professionals including an estate lawyer. Even-handed consideration of the interests of all stakeholders will lead to the best outcome for the family and the business.
Family companies in No Man’s Land
It is not uncommon for family businesses to fall into the category that Newport Board Group calls No Man’s Land. This is the stage of company development where a company has hit a plateau. The firm must scale its business to the next level of growth, around what Newport calls the Four Ms℠: Market, Model, Management and Money. For a family business these “M’s” may mean:
Market – The company has to expand beyond the market niches where it has long been known and trusted.
Model - Difficult decisions must be considered as to how to finance step change improvements in infrastructure to support higher volume.
Management – Bringing in experienced managers may be a particular challenge if it involves replacing or demoting long-serving family members.
Money – Raising capital to fund growth requires careful thought, especially if it results in new family or outsider equity shareholders.
Often a bright future
Family businesses that can surmount the challenge described above have the opportunity to bring in new energy and thinking from a rising generation of family members. Firms who succeed in resetting their strategy, governance and business practices have a chance to sustain their legacy for generations to come.
Bill Reading is the Managing Director of Newport Board Group’s practice in the Carolinas. Bill can be reached at (704) 491-9845.
Michael Evans, Newport Board Group, LLC, http://Newportboardgroup.com, +1 (415) 990-1844, [email protected]
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