Financial Fitness

6 Steps for Maintaining a Thriving Family Business

A family business may be a significant part of your overall portfolio of assets, so it's important to make sure you're keeping it healthy.

by Michelle Crouch - March 27, 2017

When you think about your asset mix, you might weigh your stock portfolio and what you hold in bonds or real estate investments. But if you’re involved in a family business, it can be a significant part of your asset mix — not to mention an enterprise that also provides employment to you and other family members.

Running a family business can be incredibly rewarding, but working with loved ones is not always easy. Conflicts can arise when business and personal lives overlap. And passing the business on to the next generation can be particularly challenging.

“In a family business, every decision and policy has to be evaluated based both on how it works for the business and also how it will affect the family dynamic — and that adds an extra dimension,” says Daniel Prebish, Director of Life Event Services for Wells Fargo Advisors.

Here are six steps Prebish suggests you can take to help ensure your family business is positioned to thrive and survive: 

1. Put people in jobs based on ability

It’s best to hire when you have a business need for a position, not because a family member needs a job, Prebish says. Then choose the candidate whose talents, not lineage, best fit the job. “The most successful family business owners are very honest about the talents of their family members,” Prebish says. “The oldest child may be a better fit in a sales role or an engineering role rather than CEO. Or maybe a child is better off being an artist or a radiologist not affiliated with the business at all.” Sometimes, recruiting talent from outside the company is the best way to fill a job.

2. Clarify and define job responsibilities

Family firms tend to be more informal than other companies, and that can lead to misunderstandings about expectations. Take the time to write formal job descriptions that detail each employee’s responsibilities and goals, and establish regular reviews. The older generation should also refrain from micromanaging. “Parents tend to constantly second-guess what a child is doing, and then the child never feels like he is actually contributing,” says Jim McKown, High Net Worth Strategist for Wells Fargo Advisors. “You need to think, ‘If they weren’t a family member, how would I be handling this situation?’ And that’s how you should handle it.”

3. Leave work at the office; leave your personal life at home

Try not to talk shop during family gatherings, especially at holidays, weddings, and other special events. And refrain from bringing personal drama into the office. “It’s important to be mindful of what role you’re in at a given moment,” Prebish says. “Can you hold off having the conversation about new product marketing with your wife while you enjoy dinner out together?”

“The most successful family business owners are very honest about the talents of their family members.”

— Daniel Prebish, Director of Life Event Services, Wells Fargo Advisors

 4. Groom the next generation

Invest in education and experiences for young family members, sending them to industry conferences and getting them training to develop a skill the business can use. You may also want to encourage them to work elsewhere before joining the family firm. “That lets them establish themselves as an employee and gives them an opportunity to mature and make mistakes outside the business,” McKown says. Having the next generation develop a solid background in business may help secure your investment as you pass it on.

5. Outline your succession plan

Passing a family business on to the next generation can be tricky, and that’s why it’s important to have a strong succession plan. “It should start with how you define success: Is it keeping the business as a family entity over many generations, or are you comfortable selling it to another firm with more resources that could build it into something better?” Prebish says. You will also need to consider how to pass along ownership in a tax-efficient manner, how company founders will be taken care of in retirement, and how to replace the current talent and adapt it for a changing market. Don’t forget to account for how the business may be a part of your personal retirement plan.

6. Know when to seek outside help

Many business owners consult with outside estate and financial planning experts to help with succession planning. But a disinterested third party can help at other times as well, says McKown, who often consults with family businesses. “We can help resolve disputes and look at the business rationally because we don’t have an emotional attachment,” McKown says.

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

Image by iStock

Additional Resources

A key strategy to maintaining a thriving family business is grooming the next generation. Find out here what an increasingly important role Millennials are poised to play in the business world.