All businesses face challenges, whether it is dealing with the changing economy, finding and hiring the right employees, or increased competition in the market. Family-owned businesses are not immune to these challenges.
There is also a unique set of challenges that family-owned businesses have to face as a result of the nature of their business structure. It is important to understand what these hurdles are so that if you find yourself facing these issues, you can not only identify them, but you can proactively develop ways to overcome them.
Let’s take a look at ten of the most common challenges facing family businesses today.
- Family problems. Physical, emotional and financial problems among family members can greatly impact the day-to-day operation of the business.
- Informal culture and structure. For many businesses, having a laid-back culture is a positive. However, the informal structure and culture found in many family businesses can equate to a lack of documentation, policies, and defined strategy and goals.
- Pressure to hire family members. It can be difficult to resist the pressure that comes along with requests from family members who want to join the business. This becomes especially complicated if they lack the basic skills and experience needed for the position.
- Lack of training. The informal culture found in many family businesses can result in a lax approach to training new employees, whether they are family members or not.
- High turnover of non-family employees. Non-family employees may feel that greater opportunities exist within the business for those who are a part of the family and may grow tired of the culture.
- Sources for growth. A huge challenge for family businesses can be determining where and how to get the capital and resources needed to grow the business.
- Lack of an external view. While family members may not always have the same opinions, they often have similar upbringing and life experiences which may lead to a uniform view of the business. Businesses need to have external views of their company and their competition in order to thrive.
- Misunderstanding the value of the business and how it is to be divided. Owners of family businesses may have varying opinions on the value of their business, or even worse, they may have no knowledge about the value of the business and what things contribute to or detract from that value. Further complicating this matter is determining how to split the profits of the business or owners’ stakes.
- Who will take over the business? It is important for family businesses to plan ahead for business succession. Many family-owned businesses do not have a plan in place and this can be a source of heated debate and intense family politics when the time arises to select new leadership.
- No exit plan. Family businesses often lack a defined strategy for what will happen if an owner wants to retire, sell the business, or transfer responsibility. This goes hand in hand with succession plan issues. All businesses need a plan for the future.
If you have any questions, please contact a member of Withum’s Private Client Services Team.