12 Signs Your Family Business Might be “Unhealthy”January 31, 2013

Healthy Business photo

Why do some family businesses prosper generation after generation and why do some flounder or fail? When multiple family members control business ownership and management over time, it’s natural that the business—and the family—will see success or struggle based on things they can and cannot control. Understanding “healthy” and “unhealthy” indicators common to all family businesses can play an important role in maintaining a healthy balance and ensuring long-term sustainability of your family business.

 

Recognizing “Healthy” and “Unhealthy” Family Business Indicators
A business entity is rarely entirely healthy or unhealthy; it may have attributes of each. Generally, a healthy family business is one that enjoys making money together, is without tension, has individuals who trust each other and who make use of one another’s abilities and knowledge. Unhealthy family business situations are when there is no separation of business and family issues, individuals are their “own island” and do not work together, and there is no coordination of family and business goals.

 

Top 12 “Unhealthy” Family Business Indicators:

  1. Little thought given to succession planning within the family and for business ownership
  2. Unclear family member roles and obligations
  3. Unclear family goals and values
  4. Lack of trust between family members
  5. Poor communication skills among family members and ineffective conflict resolution
  6. Lack of direction and strategic planning for the business
  7. Lack of expertise for the business and the family does it all
  8. Lack of collaboration between and nonfamily employees
  9. A nonfunctioning/absentee board of directors
  10. There is no one to go to for advise and help with key problems
  11. Family issues effect business issues and vice versa
  12. Unclear boundaries between work and family

 

Checklist of “Healthy” Family Business Indicators:

 

Family Functioning

  • Resolution of conflicts with mutual support and trust
  • Open and clear communications
  • The family’s ability to make decisions and move on
  • Family clarity about goals and movement toward them
  • Good family direction and leadership
  • Respect of appropriate work, family and intergenerational boundaries
  • Individuals are flexible and welcome the use of advisors

Business Management

  • Decision-making based on knowledge and expertise
  • Balance of responsibility and authority
  • New competencies and effective behavior developed by organizational learning
  • Leadership is spread throughout the company and family
  • Succession is planned early
  • Efficient use of knowledge to adapt to changes

Governance and Ownership

  • Clear mission and goals
  • A functional board of directors with non-family members
  • A sound plan for succession and intergenerational transfer of owenership

Effective Boundaries Between Family and Business

  • Consideration of family values in business strategic planning
  • Both systems use goals and values to steer the course
  • Business issues are not discussed in the family and vice versa
  • Mutual learning between systems
  • Understanding of individual core competencies and that of the business
  • Porous boundaries and appropriate exchange of information between systems

 

Blueprint for a healthy balance
Sharing these indicators with family business stakeholders is a good place to begin. What indicators matter to your family business? Where do you want to be? While many of the traits and considerations common to family businesses are similar to that of regular businesses—all businesses have control issues, all businesses have succession issues, all businesses need to define a clear set of goals and objectives—the difference is that family-owned businesses must consider the underlying family, its members, its goals and its interplay within the operations of a successful business. Every family business is unique, and some choose a qualified team of family business advisors with various multidisciplinary backgrounds to provide an objective third-party approach to helping the family, the business and its owners achieve their collective goals.

 

Family business advisors can help family business members decide whether they should treat one another as family members or employees; they can help with succession plans to ensure the needs of the family, the business and the shareholders are taken into account; they can also work with the family to make sure there is proper family representation on the board and that the board runs effectively. The family business advisory team can also be the “fall guys” for the difficult decisions that sometimes must be made by certain members of a family business. They can help the family business manage the process of change. If you’d like to set up a complimentary consultation with the Curchin Group’s Family Business advisors, please contact me at conover@curchin.com.

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