Secrets to successful family-owned businesses

As corporate lawyers we are instructed by an array of different types of businesses. A common type of business which we engage with are family-owned businesses, which are commonly identified as a business where more than half the share capital of the business is controlled by members of the same family.

We encounter family-owned businesses which are thriving but also some which are struggling. We therefore have insight into the challenges a family-owned business can face, and the strategies which they implement to succeed.

Challenges

So, what are the key areas we see family-managed businesses needing to tackle?

1. Succession Planning: Transitioning leadership and ownership from one generation to the next can be complex, especially when family members have different interests, capabilities, and levels of involvement in the business.
2. Conflict Resolution: Family dynamics can sometimes lead to conflicts, whether it’s related to business decisions, power struggles, or personal issues. Managing these conflicts effectively is crucial for the well-being of both the family and the business.

3. Balancing Family and Business Interests: Finding the right balance between family needs and the requirements of running a successful business can be a struggle. This includes issues such as nepotism, fairness in decision-making, and managing expectations of family members who may not be actively involved in the business.
4. Professionalisation: As family businesses grow, there’s a need to professionalise operations, governance, and management practices. This can involve bringing in non-family executives, implementing formal processes and structures, and adopting modern management techniques.
5. Communication: Effective communication is essential in any business, but it’s especially crucial in family-owned enterprises where personal relationships are intertwined with business matters. Clear communication channels and regular family meetings can help address misunderstandings and align goals.
6. Managing Growth and Innovation: Family-owned businesses often face challenges in adapting to change and embracing innovation. Encouraging a culture of innovation and openness to new ideas, while preserving the core values of the family business, is key to long-term success.

Strategies

Family-owned businesses who successfully balance the family and business needs tend to employ some or perhaps all of the following strategies:

1. Develop a Strong Governance Structure: Establishing clear governance structures, such as a board of directors, can help formalise decision-making processes and provide a forum for addressing family and business issues.

2. Create a Succession Plan: Start succession planning early, involving key stakeholders and seeking professional advice if needed. Clearly outline roles, responsibilities, and criteria for selecting successors to ensure a smooth transition.

3. Promote Open Communication: Foster a culture of open communication where family members feel comfortable discussing both business and personal matters. Regular family meetings and transparent communication channels can help prevent conflicts and build trust.
4. Professionalise Operations: Recognise the importance of professional management and consider bringing in non-family executives with relevant expertise to complement family members’ skills. Implement modern management practices and invest in training and development to enhance capabilities.
5. Seek External Expertise: Don’t hesitate to seek advice from external advisors, such as consultants, lawyers, or accountants, who specialise in family business issues. Their impartial perspective can offer valuable insights and help navigate complex challenges.

6. Focus on Long-Term Sustainability: Keep the long-term sustainability of the business in mind when making decisions, balancing the interests of current and future generations. Embrace innovation and adapt to changing market conditions while staying true to the family’s values and legacy.

With mfg having had the opportunity to works with many family-managed enterprises, we see the impact that conflict over responsibilities, succession planning difficulties and the mixture of personal and professional relationships can have. However, with the right strategies, and the appropriate personnel to implement these strategies, these businesses can enjoy success for decades moving forwards.

For more information and how we can assist you, please speak to Corporate Partner Laura Charles by calling 0121 236 7388 or by emailing laura.charles@mfgsolicitors.com