Family businesses are the economic engine that drives America. The latest research shows that there are over 24 million family businesses in the U.S., which account for nearly 90% of the business tax returns. In addition, 62% of the workforce are employed by family enterprises. Even though it sounds satisfying to build a business with the people you love and want to spend more time with, operating a business for these reasons is not a good foundation on which to build a solid business.
It’s well known that one of the major reasons (if not the biggest reason) that small businesses fail is due to undercapitalization. Simply put, they don’t have enough working capital to pay the bills. While financial capital is key to successful business operations, in family businesses, “relationship capital” plays a key role.
These relationship dynamics come from having a history with other family members. The memories often make communication difficult for family businesses. It’s important not to overlook the essential traits of good communication, such as loyalty, safety, trust, goodwill, and honesty. These are key elements in being able to talk about tough issues in a productive way. Most family businesses fail as a result of the family baggage that weighs them down and eventually destroys the business.
Essentially, each family member should be prepared to do their job in exactly the same manner as they would in a traditional business setting. All roles need to be well defined and boundaries must be respected.
There are unique advantages to family business as well. Family members are often more sensitive to one another’s needs. Concern for each other’s well being can provide a positive and caring work environment and culture. Brainstorm everyone’s talents and make use of peoples’ assets. Consider the following tips on how to make a small business not only survive, but thrive in a competitive business world.
- Recognize that successful family businesses develop organized, formal, and regularly scheduled systems for improving and sustaining sound communications.
- Make succession planning a priority and develop multiple exit strategies.
- Understand that change is inevitable and work on learning, growing, and seeking new opportunities for improvement rather than focusing on maintaining the status quo.
- Determine what it means to have a healthy family and a healthy business working together for mutual good. Strive to reach that balance.
- Be aware of the nature of changing families and develop decision-making systems to support both the family and the business.
- Don’t hesitate to call on a professional advisor who can provide advice objectively, and who will understand the vast differences between the issues facing family owned businesses.
So, whether you’re looking to start up a family business or are already involved in one, take the time to work out all the details. Pool everyone’s talents in such a way that the business can not only survive, but thrive in a dynamic environment.