The study shows family businesses are minefields for potential conflict because some family members will be out of the loop. Family members most actively involved in the business are spouses (35.4%) and sons (35%). Brothers are a distant third at 8.8%. The least involved are daughters (8.8%) and sisters (1.6%).
Not only are sons more involved in the business, they are also five times more likely to succeed the CEO than the daughters. Indeed, only 10% of family businesses are owned by women.
Significantly, the study found that most family business owners had done little to resolve these conflicts. It found that 86% had not set rules to strengthen interpersonal relationships, 82.1% had not established policies to deal with predictable family-business issues before they flared up and 72.1% did not hold regular meetings to share information, build trust and create consensus.
Family councils one solution
The chief executive officer of Family Business Australia Philippa Taylor says family businesses need a separate board or panel to deal with family issues.
“So if someone feels it’s unfair that big brother got a car and they didn’t, it goes to the family council,’’ Taylor says.
“A lot of families become very alienated from each other because if you have got mum and dad working in the business and you’ve got a couple of kids who choose not to work in the business, if they don’t have these sorts of processes you will find that the two who are not involved will feel totally out of it because the discussion will revolve around what happened in the shop.
“But if you’ve got those structures and processes, you start taking the business off the kitchen table and you start doing it the way it should be done.”
Apart from family disputes, family businesses are also harder to sell because of a lack of process.
According to the study, 65% of family business owners said success and wealth was not achieved by having formal rules and processes. And non-family members, who can perhaps provide some independent input, are not welcome. While 42.3% had a formal board of directors, 85.3% did not have non-family members on their boards.
And despite the fact a large chunk of family business owners have selling up on their mind, the survey shows 66.1% said the business was not yet ready to sell.
Fitzgerald says the lack of process can make it difficult to sell the business.
“Many of them don’t have up to date books, they don’t have accurate accounts and that definitely affects the sale of the business, especially these days. Nowadays, the banks want to know what you want to buy and they get involved ascertaining what it’s worth, whether you can run it and whether you can repay the loan over a period of time.
“They will knock back finance accordingly. That has made it harder for borrowers and harder for buyers.”
Smyrnios says that succession is still the big problem for family business. How bad is it? According to his study, only a small proportion of owners have set a retirement age or date when they leave.
“The majority of owners continue to view it as an event rather than a process that requires medium to long term planning. The certainly don’t benchmark the issues,” he says.
“Not doing things like that further complicates the picture because the next generation might be interested in taking over the business. They just don’t know when that’s going to occur.”
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Is the business in a position to be sold? How much reliance is there on the business owner? Does the business have good systems? These and many other issues should be addressed as the business is developing and growing, not just when it is time for a sale.
Planning for the end is an extremely important element of business.