The Risks & Rewards Of Family Businesses
Akyra celebrates Family Business Day for a number of reasons. These enterprises (often passed down through generations) embody a unique blend of tradition and entrepreneurial spirit and they are the bread and butter of our human resource consultancy practice.
As a small business owner myself (and growing up in a family where my grandfather started a business in 1917, which was subsequently run by my father and his brother until it was sold in 1984), I have a deep understanding of the associated risks, rewards and sense of achievement.
So let’s delve into family businesses and the risks they face, the rewards they offer and the profound sense of achievement they bring.
Family-owned businesses account for around 70 percent of all businesses in Australia, employ just half of the workforce and range from small businesses to large corporations primarily in the agriculture, retail, manufacturing and professional services space.
As such, they are the backbone of the Australian economy; contributing significantly to employment, innovation and community stability.
Family businesses and risk
Family businesses face unique challenges. But what exactly are these risks and challenges?
Succession Planning: One of the most significant risks is succession planning. Ensuring a smooth transition from one generation to the next can be fraught with difficulties, including family conflicts, differing visions for the business and the potential lack of interest or capability among younger family members.
Internal Conflicts: Another risk is the potential for internal conflicts. Family dynamics can complicate business decisions, leading to disagreements that might not occur in non-family businesses. These conflicts can sometimes escalate, affecting the business’s performance and even its survival.
Capital: Family businesses sometimes struggle with access to capital. Investors and banks might perceive them as riskier compared to larger, more established corporations, making it harder for them to secure funding for expansion or innovation.
Skills: Additionally, small family businesses often do not have the cross section of skills they need to manage the business profitably – e.g. accounting and bookkeeping, human resources, social media and marketing, compliance, IT and cyber security.
Outsourcing: Outsourcing some or all these tasks allows small business operators to focus on their core activities and drive business growth. As with all benefits, there are risks associated with outsourcing – e.g. finding the right vendor for the task; quality issues; vendor reliability; loss of control; and legal and compliance issues.
Here at Akyra, we are often the ‘HR department when you don’t have one’, providing support that is both strategic and tactical; planning for the future in relation to workforce matters, mitigating the risk of things going wrong. If they do go wrong, Akyra has got your back when it comes to dealing with compliance and sticky issues.
Understanding these risks can help the small family business operator make informed decisions and implement strategies to mitigate them.
Rewards of family business
Despite these risks, family businesses offer numerous rewards with a long-term focus that often translates into a strong commitment to quality and customer satisfaction.
Personalised Service: Family businesses are known for their personalised service and deep understanding of their customers’ needs which, in turn, fosters loyalty and repeat business.
Identity: Moreover, family businesses tend to have a strong sense of identity and culture; leading to higher employee engagement and loyalty. This sense of belonging can enhance productivity and reduce employee turnover; always beneficial for the business’s stability and growth.
Community Engagement: Family businesses also play a crucial role in local communities. They often support local suppliers, contribute to community events and provide employment opportunities. This local engagement can create a positive feedback loop, where the success of the business directly benefits the community which, in turn, supports the business.
Achievement: Running a family business can bring a profound sense of achievement. There’s a unique pride in building something that’s not just about financial success. It can also be about creating a legacy and contributing to the family’s history and identity.
Values: Family businesses often embody values and traditions that are important to the family. Upholding these values in the business context can be deeply fulfilling and provide a sense of continuity and purpose.
Helpful strategies
Apart from compliance and managing the day-to-day people issues, succession planning and contingency planning are two important but often overlook strategies that can mitigate not just risk but also stress and mental health issues.
SUCCESSION PLANNING
Succession planning is focused on the long-term crucial for the longevity and success of family businesses. Here are some strategies to ensure a smooth transition:
- Start discussing succession plans early and involve all relevant family members. Clear communication helps manage expectations and reduces the potential for conflicts. It’s essential to be transparent about the intentions and criteria for selecting the next generation’s leadership team.
- Create a documented plan that outlines the process for succession which should include timelines, roles and responsibilities. Having a formal plan helps ensure that everyone is on the same page and that the transition is well-organised… no matter how long term that transition might be.
- Identify potential successors early and provide them with the necessary training and professional development opportunities – e.g. formal education, mentorship and/or hands-on experience in various aspects of the business.
- Gradually transition responsibilities to the successor to ensure they are well-prepared. This phased approach allows the successor to gain confidence and experience while still having the support of the current leadership.
- Involving non-family members in the succession planning process can provide valuable perspectives and help ensure the plan is fair and objective. Non-family employees can also play a crucial role in supporting the new leadership.
- Be proactive in addressing potential conflicts that may arise during the succession process – e.g. mediation or seeking the help of a family business consultant to navigate complex family dynamics.
- Define clear criteria for what constitutes a successful transition. This might include business performance metrics, leadership qualities and alignment with the company’s values and vision.
- Succession planning is not a one-time event so you will need to regularly review and update the plan to reflect changes in the business, family dynamics and the readiness of potential successors.
- Building a culture of trust and collaboration within the family and the business is essential for a successful transition so encourage open dialogue, mutual respect, and a shared vision for the future.
- Consider seeking advice from professionals (e.g. family business consultants, legal advisors, human resource business partners and financial planners) as they can provide valuable insights and help ensure the succession plan is comprehensive and legally sound.
CONTINGENCY PLANNING
Contingency planning, on the other hand, is focused on the short-term and it’s a lifeline that ensures a business can weather unexpected storms. Let’s break it down.
Think of contingency planning as your business’s safety net. It’s all about preparing for the “what ifs” – i.e. those unexpected events that could disrupt your operations. Whether it’s a natural disaster, a sudden illness of a key family member or an economic downturn, having a plan in place can make all the difference.
For family businesses, the stakes are often higher. The business isn’t just a source of income; it’s a legacy, a part of the family’s identity. Contingency planning helps protect that legacy. It ensures the business can continue to operate smoothly, even when faced with challenges.
Some steps to consider for effective contingency planning include:
- Start by brainstorming all the possible risks your business could face. This could be anything from a fire at your main office to a sudden market shift. Involve family members and key employees in this process to get a comprehensive list.
- Once the risks are identified, consider how each one could impact your business. Which risks could cause the most disruption? Which ones are more likely to happen? This will help you prioritize your planning efforts.
- For each high-priority risk, develop a response strategy – e.g. backup suppliers, communication plan for emergencies or cross-training employees so they can cover for each other if needed.
- Clear communication is crucial during a crisis. Make sure everyone knows who to contact and what steps to take. This includes family members, employees, suppliers and even customers.
- Write down your contingency plan and make sure it’s easily accessible and that the relevant people know where it is. It should be a living document that you review and update regularly.
- Test your contingency plan regularly because it will help you identify any necessary adjustments. It’s better to find out during a test run than during an actual crisis.
- The business environment is always changing, and so are the risks. Make it a habit to review and update your contingency plan regularly so it remains relevant and effective.
Key takeaways
- Family businesses face unique risks; however, the benefits they provide and the sense of achievement they bring make them invaluable.
- Mitigate risk by outsourcing tasks that specialists can undertake while you focus on what your business does best.
- By implementing succession planning, family businesses can navigate the complexities of succession planning and ensure a smooth and successful transition to the next generation’s leadership.
- Contingency planning might sound like a dry topic. By taking the time to prepare for the unexpected, family businesses can ensure their legacy endures; no matter what challenges come their way.
With years of experience partnering with, and supporting family businesses, Akyra can provide the HR advice and support needed to help your business thrive. Contact us today for an obligation free consultation.
Disclaimer – Reliance on Content
The material distributed is general information only. The information supplied is not intended to be legal or other professional advice, nor should it be relied upon as such. You should seek legal or professional advice in relation to your specific situation.
