Running a family business is just like running any other small, medium, or large business. However, certain issues are specific to operating a family-owned business. I have compiled the best practices you will find in a well-run family business.
1. CLEAR COMMUNICATION IS HALF THE BATTLE
Create an atmosphere for open discussion among family members. Go for consensus rather than edict. Do not ask others to relay messages for you: speak directly to one another.
2. REMUNERATION SIGNALS FAIRNESS
Remuneration of family members should be no more favourable than that of equivalent non-family employees. Use outsiders, possibly non-executives, for appraisal of senior family management. If non-family members are more suitable for the job, use them.
3. RIDE THE CHANGE WITH GRACE
Accept that change is inevitable. Do not accept ‘it has been done that way since Grandad’s day’ as an excuse for not making change. When commercial reality requires change, change!
Individuals’ objectives change over time – respect these changes and ensure they are articulated.
4. SUCCESSION IS ABOUT HOW YOU DO IT, NOT WHAT YOU DO.
Succession planning needs to be started sooner rather than later. Ten years before retirement is not too early. Consider all the succession options with an open mind – avoid sentimentality. Discuss them with others. Commit your succession plan to paper.
5. DOCUMENT THE VISION
Develop a vision for your family business which should consider aspirations of important family and non-family members. Create an environment for open discussion among family members to identify and document the family’s objectives and core philosophies.
6. STRATEGIC PLANNING IS NOT OPTIONAL
You must resort to long-term strategic planning – duly document all your plans and strategies. Make sure the family understands the business is a commercial venture that needs to be run professionally. Focus on objectives rather than personalities.
7. INVITE OPINIONS
Help family members avoid tunnel vision – let them generously embrace opinions and suggestions from people outside the business as well. Business associates, dealers, and other stakeholders will be of great help.
8. ENSURE EVERYONE KNOWS THEIR ROLES & RESPONSIBILITIES
Role and responsibilities of all family members must be clearly defined. Have clear-cut policies for all kinds of monetary compensation (like salaries, dividends, and others) payable to non-participating family members.
9. BE CAREFUL OF HIRING (AND FIRING) OF FAMILY MEMBERS
Avoid hiring family members who are not adequately qualified or lack the necessary skills and abilities. Create suitable organizational mechanisms to fire them when it is clear they are not working out.
10. LOOK OUT FOR THE TURNOVER OF NON-FAMILY MEMBERS
Watch for high turnover of non-family members. Find out reasons as to why such people are leaving the organization. Hold exit interviews and initiate suitable corrective actions based on the feedback obtained.
I shall continue with another 10 rules on my next blogpost. I write every Saturday. Make sure to follow my blog!