Strictly Private – Your Family Business

Your family business may be your most valuable asset and possibly the biggest contribution you will make to future generations, but statistics show the odds are against you for long term family succession. There is a maxim - “The first generation founds the business, the second generation builds it and the third generation ruins it.” So how do you ensure that your family business will be successful in the long term?

We suggest that there are six key issues that family business owners should address:

Issue 1
Do family values conflict with commercial decisions?
For example, family employment may be based on seniority rather than ability, or children with different business abilities are treated the same.

Issue 2
Does the family appreciate the family business?
Membership of the family business should be a privilege not a right. It is important to have high entry standards for family members and to carry out regular performance evaluation.

Issue 3
Is the family business managed professionally?
The family business must adopt sound commercial principles including having a written business and strategic plan, a proper management structure in place, regular and effective management meetings and comprehensive reporting systems.

Issue 4
Will the family business fund growth and retirement?
With fewer shareholders than a public company capital may be in short supply. Family business owners must make sure they have a budget and cashflow reporting system, and a program to fund growth and ensure that funds are set aside for retirement.

Issue 5
Is there a program in place for management succession?
Management succession is a major cause of family business turmoil… but it will happen sooner or later. The owner/manager of the family business should address this issue whilst there is time to identify and train a successor. As with any business plan, a succession program should be put in writing.

Issue 6
Have the problems of ownership succession been recognised?
Unfortunately ownership succession problems are often not recognised until it is too late. To overcome this the family business owner should ensure he or she has a properly prepared and an up-to-date Will Also, he or she should differentiate between “active” and “passive” family members; reward active members with the family business, and reward passive family members with other assets.

Some of these issues can be highly emotional and difficult to resolve, so it is important to seek good advice. PwC can help with all facets of a family business.