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Keeping it all in the family poses specific challenges

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PaperPeeps.jpgSome of the world's most famous and successful businesses were started by families, including Wal-Mart, Toyota, Ford and De Beers.

Many of the businesses that are now listed on stock exchanges globally, started out as family businesses. No doubt many other ventures were started, but failed to reach such heights of success.

What makes a family business prosper? What makes them different, and do they face the same challenges as any other business?

From a legal perspective, family-owned businesses must adhere to the requirements that are laid down by the law. So they have to be registered for all the same things as any other business. Like any business, they need to have proper financial plans in place that will cater to the needs of the company and its staff.

For the business to be successfully passed down from generation to generation, a succession plan is of critical importance. Plans have to be put in place and possible leaders groomed from early on. Hope alone will not ensure that the children are interested in joining the business.

According to Old Mutual, only 14 percent of family businesses stay in the family after the third generation. This is largely attributable to a lack of succession planning. Lack of proper estate planning will also have an impact on the succession plan and, ultimately, on the business.

Family businesses have to manage sibling rivalry and conflicts with relatives. Often, the business is left to the oldest male, who may have interests outside of it, while the youngest child or daughters may have a strong passion for the business. To circumvent some of these problems, the owners should address the expectations of all the siblings.

From early on children must be made aware of the business, what it represents and what is expected from them as they grow into adulthood. Successors that are chosen must then be exposed, step by step, to the business, how it is run and its environment.

It is advisable that they start at the bottom rung of the ladder, rather than be appointed to senior positions without experience simply because they are part of the family. They can then work themselves up to managerial positions and eventually take over, knowing exactly what the business is all about.

Many of these businesses also employ people who are not part of the family. When this happens, relationships and reporting have to be managed carefully to ensure everybody knows their place in the pecking order. Failure to do so could result in unnecessary tensions and the loss of good employees.

Poor corporate governance, structures and processes are some of the challenges that face family businesses.

I have personally seen a family-owned business that grew to a respectable medium-sized business falter when the owner (who had built it up out of a garage) still tried to run it like a local "mom and pop" enterprise.

As the business grows, policies, procedures and controls need to be implemented and staff and managers must be given room to be accountable in their own right. Corporate governance issues need to be dealt with.

Many family-owned businesses do poorly on leadership skills, and dynasties have crumbled because of lack of direction and poor vision for the future of the company. We are not all natural leaders; some have to be taught how to lead.

Clearly family businesses face challenges that are unique to them, but others will be about issues that confront all enterprises. The key thing to remember if you are running a small business is to manage succession planning, family dimensions, expectations and, of course, the actual operations of the firm.

This article first appeared in the Business Report on the 30th of April 2009

Nikki Viljoen is an internal auditor, business administration specialist and the owner of Viljoen Consulting, a specialist Internal Audit company. Viljoen Consulting recognizes the absolute necessity for SMME’s to implement best practices in respect of policies, procedures, flows, controls and other preventative practices, thereby protecting the company from possible fraud and other related losses.

Copyright (c) 2016, the credited author
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