Perhaps your brother, the company finance guru, has sloppy bookkeeping habits.
Or your daughter, in charge of sorting inventory during slow stretches at your retail shop, instead checks Facebook while on the clock.
And you can’t even remember the last time you all had a team meeting to discuss how business is going.
Are all these clues that it’s time to professionalize your family business?
Here’s a telling sign that the answer is yes: When your company strays too far from the habits you had in your early days.
Think long and hard about how your business came to be. Your family business didn’t start as a family business. It began from someone simply trying to generate an income. Perhaps someone experienced a flash of insight into a hot market opportunity. Or maybe someone just stumbled onto something big.
A client of mine declared, “I never thought I would be in business with my kids. I was simply trying to build something that would generate enough money for us all to live on. And then it snowballed.” As they are in the assisted living business – and baby boomers are heading their way en masse – they are sitting pretty.
But the founders of that business, and other successful ones, had to possess essential traits during their startup phase:
• A certain level of smarts.
• The willingness and ability to work extremely hard.
• A decent business idea.
• Initiative to act on luck that came their way, and
• An ability to take creative and persistent approaches to problem solving.
Now let’s take that business and fast-forward 20 years. Add on millions of dollars in revenue, and a lot more employees. Reactionary management, no matter how adroit, will no longer suffice.
Fixed, formal, professional plans need to be in place.
I know a family business that had become a national brand, with sales across the U.S. and their own manufacturing facility. But day-to-day, the founders still ran things off-the-cuff: meetings were ad hoc, employees were hired and fired on a whim, and financial management meant seeing how much money was in the bank. Showing leadership meant fighting the hottest fire of the day.
Things had to change if they were to survive.
That’s because when the next generation becomes involved in the family business, they adopt the management methods they see. Their response for doing so is typically, “That’s the way dad always did it.” However, once the business gets to a certain size, management by the seat of your pants is no longer sufficient. The business must professionalize in order to survive and make it to the next level. The focus must change from working “in” the business to working “on” the business.
Here are some tried and true tips to professionalizing your family business:
• Hire only the most qualified people for jobs. This could mean bringing in some non-family professionals – one of the major recommendations of a recent PwC Family Business Survey.
• Use formal evaluation systems.
• Base your pay system on market rates for the position. Resist paying high salaries just because they are family.
• Conduct regular reviews of your financial data.
• Hold meetings, and take a disciplined approach to them.
• Assemble a board of advisors. Include members who are not involved in your family business.
• Adopt a philosophy of good communication and transparency.
Many family businesses fear professionalizing the business because flexibility may be reduced, the “family feel” might diminish, and it will just not be as much fun. However, gradually implementing elements of professional management over time will reduce chaos, improve accountability, and most of all improve business results. And a better bottom line is always fun.