Many studies and books that have come out in recent years have helped collect and analyze the data. Today, it’s become clear that there families who successfully operate and transition ownership of a business from one generation to the next do so because they follow a few key principles:
Clearly define everyone’s role
The first thing that all successful family owned business dynasties do is make sure everyone’s role within the business is clearly defined. This becomes more important after a business has been handed down from the original founder to the next generation. At this point, most of the owners feel the company is “theirs” on a certain level. By making sure all family members have a clearly defined role – many of the conflicts that can arise in such situations can be staved off beforehand. Make sure that everyone knows who is in charge of what.
Always tell each other the hard truths
One of the biggest reasons family businesses fail after the transition from one owner to the next is a lack of open and honest communication. Often times, family members in such families feel obligated to pass on the business to someone they don’t really believe can handle it. On the other hand, many children have taken over a business from their parent without really wanting to because they felt obligated.
No matter what the situation – families that are able to tell one another the hard truths about the business, their abilities, and their desires are the ones that end up being successful in the long run. One of the best ways to help with this is to schedule regular meetings where any such concerns are openly discussed.
Always watch the business numbers
This can be a big one. If there is no one in the family qualified to stay on top of the financial data of the family’s business – outside help must be brought in. Finances are too important to leave to someone in the family just because you need someone to do them. Your business finances must be correct at all times or any decisions you make can be skewed.
Experience has taught the best family owned businesses to immediately hire outside financial help if they believe no one in the family is qualified to provide it.
Never promote a relative who isn’t qualified
This one may seem simple, but it trips up even the best of companies. Simply put: if someone is not qualified or competent for a job they CANNOT be expected to perform it to the level the business needs. Therefore, in order to remain profitable, a family business must avoid hiring incompetent employees simply because they are in the family and must also ensure every job each family member has is something they are qualified to have at any other company.
Never overpay anyone in the family
Though families tend to want to take care of their own, overpaying family members can be extremely short sighted. Therefore, in order to best protect your family business always pay members a fair amount based upon the market average for the position they perform in their industry.
If you pay one child too much, when a second child wants a job, you may not be able to support two-such inflated salaries. Additionally, if finances of the business changes and you find you can no longer support an inflated salary, reducing the pay of a family member can lead to hurt feelings and other issues that affect the longevity of the family business.
Don’t assume a transition will “just happen”
No transition from one owner to another in a family business can “just happen” and be successful. It must be planned carefully. As soon as you know you want to be transition ownership one day, begin to make plans. Sit down with your business attorney and other essential advisors and map out a road to a successful transition. Even if your retirement is over 10 years away, it’s not too soon to start. The sooner you begin training your replacement, the more experience, insight, and wisdom they will have upon taking over when you retire.
Still have questions?
Please call us for a free appointment with Miami business attorney Yoel Molina in our Miami office at 305-548-5020.