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The 4 Biggest Challenges Facing Family Businesses

by Editor on 23rd July 2014

Family Businesses face 4 big issues and recent specific research has backed up my analysis gained from over 20 years experience of advising this challenging business sector.

The research is part of the latest report on family business from Barclays and CEBR. The ‘Second Generation Family SMEs in the UK’ report reveals fewer businesses are being passed down to grandchildren.

The number of businesses handed on to the next generation has fallen by 136,000 since 2007. Currently, 570,000 family-run UK small and medium businesses have been in the family for more than one generation. Seven in ten (71%) of these have been in the family for two generations, while only 29% have made it through to the third generation and beyond.

So where is it going wrong, experience tells me that there are 4 major issues.

The No1 issue: A Lack of Shared Vision or Strategy for the Future of the Business.

This is the usual cause of major arguments and rifts in these businesses. I am often called in to family run businesses that are in conflict, the root of the problems is in many cases is the lack of a clear agreed direction for the business. Without a clear agreed and measurable vision family businesses will face arguments between the generations about where the business is going, how to get there and the strategies and tactics that create will business success.

The No 2 issue: No Family Constitution.

Without an agreed and written Family Constitution there is a huge potential for family conflict. What are the game rules for discussing business at home, how are additional family members brought into the business through marriage or even re-marriage etc. Of course this should all be underpinned by a written shareholders agreement which also covers the transfer or disposal of shares etc.

The No 3 issue: No Succession Plan.

Without a clear plan for succession job roles and responsibilities become muddled and no skills analysis is carried out.

The result of this is the younger family members are not developed or given the robust skills & knowledge required to take over the business when their parents want to take a back seat or even retire. Their parents also sometimes lack the confidence to let go or even worse feel that their approach to running the business is best despite not recognising that the world has changed around them.

Unbelievably in some cases there are huge assumptions about the succeeding generation’s future plans.  The belief is that the children actually wish to take over the running of the business when in some cases that is the last thing that they want to do. The other scenario is the parents incorrectly feeling that the children don’t have the skills or motivation to succeed them.

The Barclays report found three in five UK adults (61%) would want to pass on a family business to the younger generation in their family if they had the opportunity, however 23% of those over 55 feared that the younger generation would not want to inherit it. In some cases the business is successful and profitable, but cash is the issue. In this situation I am able to obtain funding to unlock the preceding generation and then develop the business to facilitate a management buyout by the succeeding generation or if desired an external buyer is found to purchase the business once the business has been developed.

 The No 4 issue: Insufficient Cash to Allow Retirement/Exit.

The need for more money in the business is the major blockage to retirement of the proceeding generation. This is the result of several problems; a business that has been underfunded; lack of adaption to market changes; an underperforming business; too many family members being ‘given a job’, sometimes unnecessarily due to marriage or other reasons. This last problem is described in the farming sector as ‘too many mouths in the trough.’

With many years experience of helping Family Businesses I have developed a range of options to assist these families to resolve these issues, develop the team and the businesses and ensure a happy and successful outcome for everyone. Contact me today to discuss your specific situation, or examine the best option from my range of Family Business Development Programme support and begin to benefit with a happier and more successful family business.

So what is your experience of running and working in a family business please comment below!

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