Working with family in your own business has its pros and cons. Learn about the most common challenges of managing a family business.
Many successful companies in Brazil and around the world started out within a family. Some examples are JBS S.A, Marfrig Global Foods S.A, Metalúrgica Gerdau S.A, Votorantim Participações S.A and Magazine Luiza S.A, among others. The revenue of these and other family businesses adds up to the third largest economy in the world.
In Brazil, this business model accounts for 40% of GDP, but in some countries that figure reaches 90%. That gives you a sense of how much power these families hold in the economy. But managing a family business is no job for amateurs. You have to handle issues that go beyond professional working relationships and follow you home.
In this post we'll cover several situations that come up in family business management, the main challenges they face and how you can make it worth working with people you trust, bound together by blood ties.
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Set clear rules and roles
Defining rules, roles and responsibilities is the first step to avoiding headaches in a family business. It prevents the problems that arise when you “employ” a relative — no matter how close — in a role that has nothing to do with their academic background. In this management model it's very common to find a position for family members even when they have no knowledge or skill for the job. That's the first step toward a business starting off on the wrong foot.
Successful companies place people in roles they are prepared for, defining the responsibility each professional will hold, along with transparency in the actions and activities carried out. This makes it possible to assess performance and demand results, regardless of family ties. You always have to make it very clear that everyone is in the same boat, rowing in the same direction; if someone rows the other way, the boat goes nowhere and risks sinking without ever leaving the dock.
Another way of rowing in the opposite direction is when managers give preferential treatment to some family members over others. That way, the business starts off on the wrong foot. While working with relatives builds trust and closeness, granting them privileges is something to avoid in order to keep things professional and steer clear of internal conflicts. Treating everyone equally, regardless of family ties, is a way not to lose good employees who may feel wronged and demotivated when a family member is favored over a staff member.
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(In)competence in running the business
The reality, especially in small family businesses, is a lack of organizational structure with short-, medium- and long-term planning. The absence of management maturity — with no formalized processes or people-management policy suited to the reality they operate in — is proof of management problems.
Many of these cases happen when the heirs take over the business but have a low level of maturity and knowledge to run it. In this situation, you can see several problems, such as:
- There is no planning of actions and objectives for the short, medium and long term;
- Management system that is backward and has become obsolete nowadays;
- Inadequate or nonexistent process analysis and control;
- Centralized, rigid management with no vision for innovation and technology;
- Inefficient communication by the business, with no vision to seek out the channels where customers actually are;
- Personal accounts tend to get mixed up with the company's. But that's a topic for the next section. Read on:
Personal accounts vs. business accounts
One of the main problems in running a business is when the manager and owner doesn't have the judgment or knowledge to separate personal accounts from business accounts, and lumps everything together instead. That's the first step toward bankruptcy.
Separating the accounts is good both for the company's financial health and for your personal finances. There are many risks in not splitting these two, such as:
- By mixing the accounts, you can't plan efficiently — for the company or for your personal income — because you don't know how much you can invest or which funds are really available;
- You won't know whether your owner's pay is fair or whether the company's profitability is on plan;
- By using personal money in the company and vice versa, you may run short of funds down the road for both sides;
- Uncertainty in the accounts on both sides;
- Trouble filing your income tax return, with difficulty showing what is yours and what belongs to the company.
To improve the way you run things, there are efficient management tools that let you administer your company well, without taking risks.
How to professionalize and optimize a family-run establishment
One of the first steps when opening a family business, besides defining roles and responsibilities, is to plan. The management team should meet regularly, In addition, at the end of each year, a broader discussion is needed to define the strategic plan for the following year.
Another important step to professionalize the company and streamline the work is to bring in a business management tool. With ERP software, you can control internal processes, from inventory, staff and raw materials to the company's entire administrative and financial side.
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