It is believed that family businesses remain in existence for a longer period of time. However, not every family business tends to last longer. For instance, research indicates that 30% of family businesses proceed from the first to the second generation, and only 12% proceed to the third.
Even though the above-mentioned stats are far better when compared to sole entrepreneurship or partnership, but the success of family business eventually comes down to zero. Most family businesses fail due to a lack of unified visions and objectives, but there are various other factors, too.
In this blog, we will take a look at the top ten reasons that are the most common causes of struggling family business.
1. Poor succession planning: As per PWC’s survey, it was found that half of the family businesses do not have a succession plan in place. The remaining half that had a succession plan had a dedicated person to take control.
Most entrepreneurs simply do not like the idea of handing over the power, while others get too caught up with the business challenges that they completely forget about the succession plan.
Regardless of what is the reason, having a succession plan is crucial, and it requires a multi-stage process of growing involvement. Even the predecessors require dedicating time to create a business roadmap. Working with a reliable family counsel advisory firm is crucial here.
2. Lack of trusted advisors: Even though financial planners, accountants, therapists, lawyers, etc., have intimidating technical skills, many require an advanced level of understanding when it comes to the family business and its extraordinary challenges.
Your trusted advisor should be capable of collaboratively working with other disciplines to offer the best outcome for the family and prevent giving conflicting advice.
If possible, work with enterprise advisors who have incredible knowledge of working with families.
3. Family conflicts: The loyalty towards the family business can only be witnessed when there is mutual support among the relatives.
Many families lack processes that help in managing conflicts in a productive and objective way. Seeking outside help is crucial to overcome unresolvable family issues. A third-person intervention can solve many problems without impacting the productivity of the entire business.
4. Different visions of different generations: Generational conflict is yet another major cause of struggling family businesses. It not only impacts the business productivity but the overall growth, too. The impact can be significant on the business if the disagreement is in the core values and the missions.
The next generation should understand the values of established work methods and entrepreneurial vision. Similarly, the predecessor must demonstrate flexibility in considering new management strategies and innovative ideas.
5. Governance challenge: Business families should not only focus on corporate governance. Along with the corporate insights and oversight, the need for family and shareholder governance infrastructure is crucial, too.
Family governance needs family meetings, assemblies, or councils that require both commitment and time. It is important to communicate so the flow of information is achieved between owners, the family, and the business.
Even though many family members avoid raising sensitive topics with the fear of losing control or sharing too many details, but without governance, there is a risk of exclusion and secrecy, procrastination, and assumptions.
6. Unprepared next-generation leaders: For a successful transition, the next generation is never given the top position in the business. This is because the successors are required to learn the ropes and aspects of the business.
With a reliable family counsel advisory firm at your disposal, you can generate guiding principles that outline the essential education and experience required for a successor to be eligible for the position.
7. Poor strategic planning: Good planning is key to producing motivation that can sustain both the business and the family during various turbulences that arise.
Your business must be careful in balancing the needs of business and family properly. For instance, family considerations can sometimes restrict the needed strategic aggressiveness within the business, but regardless, the strategic planning must comprise more than just finances.
8. Avoiding the advantage of “family-ness”: One of the unique resources embedded in any family business is the “family-ness.” Keep in mind, many oldest and well-established businesses around the world are family-owned, so it is crucial to identify family with the business.
When you acknowledge the term “family” in the business, the growth of the business will get leveraged by the security, loyalty and commitment of the family members.
9. Basic principles of the business aren’t applicable: Family business demands are quite complex, which cannot be met using traditional business education.
Yes, definitely some aspects of the business can be tackled with traditional education, but central issues like succession planning, family dynamics, communication, and family governance need more than just MBA programs, business degrees, and advanced education courses.
If a family is looking forward to ensuring a successful succession, then they should seek specialized education or take help from a professional family counsel advisory firm for an effective outcome.
10. Exclusion of family members outside the business: When it comes to the family business, every family member has an investment in the overall asset and business of the family. They can either be active in management or asset of the business.
And since various factors like lifestyle, health, and happiness of everyone impacts the assets, it is best to follow, “let’s deal with the business like a business” approach. This way, the family is capable of cutting to the chase rather than going around the bush.
No matter how a family member is related to the business – whether born or married into the family business, including everyone is crucial to keep the business afloat and everyone happy.
Family enterprises have more potential to succeed compared to sole entrepreneurship or partnership.
So, if you own a family enterprise that is suffering from either of the above-mentioned reasons or something else, then connect with Axiom for a full range of family counsel advisory. They can deliver professional guidance seamlessly.