3 Strategies for Running a Family-Owned Business
As a business owner, you tackle a long list of challenges daily. If you run a family-owned business, the dynamics of those challenges may be so complex that you want to shove the list under the rug altogether.
It’s a common experience. According to the U.S. Census Bureau, 90% of all businesses in the U.S. are family-owned businesses — meaning that majority ownership lies primarily or exclusively with the family, and two or more family members are involved in the business. Issues often arise when boundaries blur between family and business, roles overlap and personal conflicts become professional ones.
In my work as a certified public accountant (CPA), I’ve helped many family-business owners navigate the “family” aspects of the business while providing effective approaches to financial, succession and estate tax planning. Following a clearly defined road map makes a difference for my clients in both their bottom-line financial success and their experience with family members along the way.
Here are three key strategies for ensuring your family-owned business runs more smoothly and sustainably for the long term.
Leaders in non-family businesses encounter a mixture of agreement and disagreement on important points, from the company’s mission, vision and goals to the best ways to achieve them. Such conflict can intensify in family-run businesses, especially when what happens at-home moves to the office and vice versa.
One way to reduce or avoid conflicts among family members — and the impact they have on the business, along with staff members and clients — is to establish a formal governance structure that does the following:
- Establishes clearly defined roles related to run-the-business activities
- Lays out processes and procedures for decision making and conflict resolution
- Holds family members and employees to the same levels of accountability and responsibility to avoid even the appearance of favoritism or nepotism
Having a formal structure in place helps provide guidelines for everyone, reducing the likelihood that personal conflicts will lead to business challenges.
Create an Inclusive Culture
Whether they work in a family-owned business or not, employees often want to feel like family. They want to know their input matters, and the significant time and energy they put into their jobs is recognized and valued.
That’s why it’s important to cultivate a culture where employees consistently experience clear communication, relationship building, and professional growth. Offering staff members opportunities to have their voices be heard and participate in decision-making processes helps them feel more engaged and invested in the company’s success.
This is especially true in the Great Resignation era, where employees are leaving their jobs en masse in search of roles that feel like a better fit. As a family-run business owner, be aware of the tendency to focus so much on your family’s challenges that you lose sight of employees’ well-being. And make a point to extend the concept of family so it includes employees in appropriate ways.
Plan for Succession in a Family-Owned Business
At some point, you and your family members will need an exit strategy for yourselves and a way for the business to transition to its next stage of ownership. Succession planning is an often complex and lengthy process, with numerous tax, legal and financial implications. These are some factors you’ll want to consider.
Find an experienced accountant or CPA firm that can help guide the succession process from idea to execution. The earlier you seek an accounting consultation, the better off you’ll be in terms of long-term estate tax planning, overall tax strategies that benefit owners and successors, and a solid plan for moving forward.
Determine who will lead.
If children or other heirs plan to take over the family business, they should have experience running it. Get them into full-time roles at the company and move them into management as they’re ready.
However, if the next generation isn’t interested in continuing to operate the business — or they’re not qualified — you’ll need to groom other leaders who will have the experience and insight to run or own it.
Think through the options.
The accountant or CPA firm you work with can serve as a business adviser and help you decide what form of succession is right for your family. For example, to minimize tax liability, owners might gift or sell their interest in the company to heirs in advance of or upon retirement or death.
If no heirs are involved, sale to a third party may be the best choice. Whatever you decide, make sure to have formal documentation so the process is clear to all participants and legally valid.
Families have their unique complexities, as do family businesses. By seeking help from financial and tax professionals and having a clear road map, you can ensure your family business runs well now and into the future.
Lisa Franz, CPA, joined CB Smith & Associates as a senior tax manager in 2020. She has more than 25 years of professional accounting experience and specializes in business, individual and fiduciary taxation, business consulting and accounting. She holds a Bachelor of Arts in accounting from North Carolina State University. She is a member of The Georgia Society of CPAs, the American Institute of CPAs and the National Charity League.