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5 Common Threats to a Family Business

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Father and son working at delicatessen together
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Every business is faced with challenges. However, as a family business owner, you are faced with unique threats to your business that, if not recognized and addressed quickly, will drastically affect your success in the market place. Here are five common threats that every family business faces and tips on how to manage them.

1. Family Feuding:

There is simply no fun and games when it comes to family feuds in your business. Family businesses are faced with internal conflict that typically arises from the inability to separate your business and personal lives. Sometimes the feuding is due to the varied interests of each family member, personal egos or personal rivalries that spill into the business environment.

Regardless of the cause, if you do not find a way to stop the feuding, it will be absolutely impossible to define and achieve common goals for the business. In addition, excessive conflict in your organization can increase employee turnover and create a hostile work environment.

2. Nepotism:

Managing family is a delicate matter, and it is important to be aware that the fastest way to alienate the people that work for you is to create a company culture based on nepotism. Everyone wants to help out family, but hiring, promoting, and paying someone based on a familial relationship rather than on their actual merits and abilities, is a recipe for disaster.

You will quickly find that non-family employees will lose the motivation and desire to work for you. In addition, family employees may become complacent because they will not face consequences for non-performance. Ultimately, nepotism does not empower your employees, and as a result your bottom line will suffer.

3. Letting Emotions Run the Business:

You have probably heard the phrase, “It’s not personal, it’s business.” Well, in a family business, it is always personal. Separating your emotions from the business is not an easy task, especially if you are directly managing a family member. It is difficult for people to receive critical feedback from peers or their boss and even more difficult to receive it from someone they love.

Be aware that if you let emotions interfere with your business, it can make you appear weak to your employees and customers, and severely affect your ability to make sound business decisions. On the other hand, if you are insensitive, you may appear cold and unapproachable. Lack of sensitivity with family employees can also cause problems at home if you are not careful. You will need to determine the right balance of emotion needed based on the dynamics of your business environment.

4. Losing Non-Family Employees:

There are two main reasons non-family employees will leave: limited growth opportunities and family conflict. Most employees want to advance within a company. Unfortunately, in most family businesses there are often limited opportunities for advancement, because family employees occupy all leadership positions within the company. Without opportunity to advance or take on a leadership role, many talented and ambitious employees will move on. Another problem is that non-family employees will leave because they feel as if they are always in the middle when a family feud breaks out.

As a business owner you need to realize that every business needs a good mix of people to help you grow. Non-family employees add balance to the organization because they have an ability to view the business from an unemotional position. If given the opportunity, they can offer valuable input on how to make the company better. Failing to recognize the positive impact non-family employees have on a family business is a huge mistake.

5. No Succession Plan:

There is going to come a time when someone retires, leaves, or perhaps passes away. If you do not have a plan, you are setting your business up for failure.

According to Nancy Bowman-Upton in the Small Business Administration publication Transferring Management in the Family-Owned Business, it is estimated that less than 33% of family businesses survive the transition from first generation ownership to second generation ownership. Sometimes this is due to the family not having interest in running the business, but in most cases it is due to the lack of creating a plan. A succession plan is absolutely necessary to ensure the business lives on from generation to generation.

Tips to manage threats to your family business:

  • Clearly define the goals of the company and make sure everyone is on the same page.

  • Outline each family employee’s role and responsibilities and hold them accountable.

  • Keep an open line of communication at all times.

  • Address all concerns quickly and in a non-emotional manner.

  • Create a fair promotion and salary system that is based on individual merit and ability.

  • Take a management course to learn how to separate your emotions from the management process.

  • Provide opportunities for advancement in your business for non-family employees.

  • Be prepared and create a succession plan to ensure your business lives on after you are gone.

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