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Professional_Intervention_in_the_Family_Business
| Professional Intervention in the Family Business
Professional Intervention in the Family-Owned Business
Running a successful family business is substantially more
difficult than running a non-family business. There are many
contributing factors. Conflict between generations as to the
strategic requirements of the business - what are the goals and
how do we get there. Financial information is rarely
disseminated to even the top managers (family and non family
members) thereby thwarting those managers who, in fact, may be
skilled in strategic planning, budgeting, costing, pricing, etc.
A family business will generally have more severe problems in
recruiting and retaining non family professional managers since
upward mobility and advancement are restricted. The dynamics for
successfully managing a family business are blurred and often
difficult to ascertain - is it a Family First Business or a
Business First Family? Because a family business tends to be
more paternalistic in management style than a non family
business, performance standards tend to be poorly described or
non-existent for most segments of the business. Because hard
operations management information is scarce or not existent,
outside advisors such as attorneys, financial planners, CPA's
and other professional counselors rely on perceptions of reality
steeped more in "how it has always been" rather than "how much
better should it be". This is a crucial deficiency because it
disengages the professional resources from serving both the
business and the family as well as they could if they were
dealing with timely, accurate and factual operating information
about the business. The management dynamics of a family business
are often more consensual than action or performance orientated.
Thus, a family business is generally not able to react to
problems and take the required remedial action as quickly as a
non family business. The ego of an entrepreneur is such that
they feel capable of doing everything themselves. Because they
feel they can do "better" than anyone else, it is difficult for
them to let go - either to delegate to subordinates or asking
for professional help even when they know that help is needed.
Professional fees are often difficult to cost justify or value.
The major contributing factor, however, is that a family
business tends to procrastinate on bringing in professional
resources until the "ox is gored and already in the ditch". The
analogy of the Fram oil filter commercial "you can pay me now or
pay me later" is aptly applied to a family business situation
except the consequences can be substantially more expensive when
the survival of the business is at stake. The family business is
less objective about profitability and other types of
performance standards - more forgiving or tolerant of people and
the work management systems of their business. With a family
business being orientated to consensus, harmony and friendship
(we are all part of the family here at XYZ Corporation), CHANGE
is a difficult process. Attitudinal platitudes such as "why fix
it if it ain't broke" prevail over the difficulties perceived
with change. This is evident not only in the internal management
systems of a family business but also to professional resources.
Just as members of the management team are impacted by "the
Peter Principle" as the business grows, that same growth problem
impacts on the professional resources such as banking, legal and
accounting. Unfortunately these changes follow generational
succession rather than the more immediate needs of the business.
Approach as part of a process rather than as an event
Our experience in dealing with the very unique problems
confronting a family business suggests that professional
intervention should be approached as part of a PROCESS rather
than as an EVENT. This maximizes the benefit and minimizes the
trauma of change. Furthermore, because the problems of a family
business are generally multi-dimensional, professional
intervention should best be introduced into the situation by
taking a multi disciplined approach to avoid fragmentation and
the waste of time and effort that generally occurs when a single
dimensional approach is employed.
The first phase of the intervention process we normally
recommend would include an OPERATIONAL ASSESSMENT of the
business.
What opportunities are available in terms of profit
optimization, cost containment or cost reduction? What are
operating parameters of the business and what changes in
operational procedures or operational protocol might increase
the ROI of the business? What options are available for
improving the health of the business, both internally as well as
in the marketplace? This OPERATIONAL ASSESSMENT provides the
family business the facts and objectivity that are often
obscured by the owner /managers being too close to the problems.
The second phase would include the involvement of a family
business ocnsultant who is skilled in both business and family
dynamics. These professionals are focused on opening up and
developing all the possible channels of communication. These
professionals should be able to facilitate a strategic plan for
the business and a strategic plan for the family as well.
Addressing one system and ignoring others is wrought with
problems that can cause a family business to self-destruct -
especially when dealing with generational issues.
The third phase of the multi discipline approach focuses
primarily on the tax consequences of succession. Without proper
planning, succession (planned or unplanned) can become a
financial catastrophe for both the business as well as for the
family.
More often than not, some financial planning has taken place.
Unfortunately, most of these efforts are focused only on one
individual - the owner/ entrepreneur. As a result, the planning
generally is incomplete or only sequential solutions are
engaged.
The financial planning for succession should be approached from
the perspective of minimizing the total tax consequences of
succession. This concept allows for the development of a
connected and well integrated approach, an approach that
considers the goals and objectives of the family as well as the
future needs of the business.
The "on-going" processes for maintaining a healthy family
business would include strategies such as conducting annual or
semi-annual FAMILY MEETINGS and establishing an outside BOARD OF
ADVISORS.
It should be noted that one of the major benefits of this
multi-disciplined team approach is the ability to involve
"outside" professional intervention to the family business in a
purposeful yet expedient manner. Although the segments of the
process have been cited to help illuminate the process, the
multi-disciplined team approach allows for each segment to be
addressed simultaneously.
If this approach makes sense, give us a call so we can discuss
the particulars of your situation and help you to formulate a
plan of action and a timetable for beginning the succession
planning process. The most difficult hurdle to overcome is
procrastination hoping the problems will go away or will solve
themselves. As Tom Watson, former head of IBM, reflected, lying
dead in the water and doing nothing is comfortable because it is
without risk, but it is an absolutely fatal way to manage a
business".
About the author:
Don Schwerzler and David Jones are Partners in the Family
Business Institute - a special resource for family-owned and
closely held businesses (http://www.familybusinessexperts.com).
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