Making a success of your family business
It might surprise you to learn that 88% of all businesses in the UK are family owned and run and more than one in 10 of the UK’s largest companies are family owned.
When running a family business, it is important for everyone to understand how the interests of the business vs the wider family interests relate, to avoid some of the issues that can lead to arguments and disruption.
Here are some tips to ensure family businesses run successfully.
Ownership and day to day management structure
Ownership may take a number of forms and the business activity could be split into separate divisions. The structure should be reviewed as the business grows to ensure that it remains fit for purpose. It is important is to decide who has control and responsibility for the day to day running of the business and how dividends will be paid. There may be conflicting demands by family members who want more shares, votes or dividends.
Consider if shares will be made available to non-family members to help raise external investment or for non-family employees, perhaps as part of an employee
You also need to decide what happens to a family members’ shares if they decide to leave the business, retire or if they pass away. Another factor to take into account is if a family member divorces and the impact this could have on the shareholding structure. It is important to take professional advice to get this right or to help make changes as people enter or leave the business.
It is recommended that a family business has an open and fair recruitment process to all otherwise existing employees may become demotivated or feel aggrieved if their promotion chances have been pushed to one side in favour of a less qualified family member. This also applies to disciplinary processes. If family members are not performing effectively then they should understand they may be disciplined or dismissed in the same way any other employee would be treated. Fairness is important to maintaining a happy workplace.
Should the business need to raise additional funding to help it to grow then it is important not to overstretch family finances. Take advice on what security might be required for this and how loan covenants will be adhered to.
It is natural that members of the family coming into the business might want to bring changes with them, so it is essential to consider how any change might be discussed and implemented. With change may also come disputes and these can be resolved in a number of ways. For example, business mentors, independent professional advisors and, in situations where deadlock occurs, independent mediation may offer advice and to help resolve a dispute.
Having an up to date shareholder agreement is the first step to avoiding and resolving disputes and the business may also wish to appoint non-executive board directors to provide impartial and expert advice.
Whatever the type of business you run, getting the structure and day to day running of it right is the key to ensuring long term success for the generations to come.