Why Family Businesses Fail

Many small businesses are family-owned or –controlled.  Nevertheless, most family businesses struggle and about only a quarter survive.  The Globe and Mail lists why most family businesses fail.  Writer Leah Golob decries the lack of professionals – lawyers, accountants, financial planners, etc. – who have thorough understanding of the intricacies of family businesses.  These usually give conflicting advice.  Family conflicts should be resolved objectively and this could mean seeking outside help.  There is also the generation gap among families where the younger set disregards the established work traditions and practices of the older family members.  Older family members, on the other hand, are not flexible to accommodate changes and innovations introduced by the younger set.  Read more reasons for difficulties in family businesses.

1. Poor succession planning. A PricewaterhouseCoopers survey shows that half of family businesses sampled did not have a succession plan in place, and only half of those that did had designated a specific person to take the reins.  Succession can require a multi-stage process of growing involvement and it’s crucial for predecessors to dedicate time to creating a business roadmap. Planning cannot be done in isolation of the family or you are planning to fail. Advisers typically make the mistake of promoting planning only with the controlling generation.

2. Lack of trusted advisers. While lawyers, accountants, financial planners, therapists etc. have formidable technical skills, many require a more sophisticated level of understanding around business families and their unique challenges. Trusted advisers should be able to work collaboratively with other disciplines to provide the best outcome for the family and avoid giving conflicting advice.

3. Family conflict. Many families lack procedures that help manage conflict in an objective and productive way, so seeking outside help is often necessary to help the family out of seemingly unresolvable issues.

4. Different visions between generations. The next generation should be careful not to reject established work methods and entrepreneurial vision, just as predecessors should demonstrate flexibility in exploring new management strategies and ideas for innovation.

5. Governance challenges. In addition to corporate oversight, they require family and shareholder governance infrastructure. Family governance requires family meetings, councils or assemblies which requires time and commitment. It’s crucial to communicate and create a flow of information between owners, the business and the family.

6. Exclusion of family members outside the business. Because the business and assets impact lifestyle, health, and happiness of everyone in the business family, the “let’s deal with business as business approach” seldom works for the family. A forum outside of business for family – both married into and born into the business – and shareholders to deal with issues is critical. …

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