Financial Advice for Entrepreneurs: How to Limit Conflicts in a Family Business
Family-run businesses are the backbone of the American economy. When they’re performing at their best, they’re a force to be reckoned with. But when conflicts ensue, even the most well-intentioned family businesses can start to crumble.
As a financial advisory firm, Rock House Financial has worked with countless business owners over the years. We ae also business owners ourselves. I grew up on a family farm with multiple uncles and cousins involved, and watched the farm grow significantly over the years. Through that time, I have realized that family businesses can run smoother when they put a few simple measures in place to limit disputes. Adding a level of professionalism to your business can also help accelerate growth.
Below are 5 tips for limiting conflicts in a family business. Both organizational and financial advice for entrepreneurs can go a long way.
Tip #1: Establish Expectations for Everyone Involved
Whether your company is small or has scaled into something larger, the first sign of conflict in any kind of business usually happens when there’s a lack of clearly defined roles and expectations. If a family member doesn’t understand his or her role within the business, it can lead to miscommunication and hinder the growth of the company.
Define job duties and expectations from the get-go. This includes creating a job description for every position in your company, so that:
- Every employee knows what’s expected of them.
- Everyone understands how their job duties fit within the company’s overall strategic plan.
- You have a way to measure every employee’s performance when the time comes.
If you’ve already decided that a family member will hold a certain position in the company (i.e. your daughter will be the CFO), make sure that person understands what it entails.
Business owners tend to wear many hats, but should financial advisor be one of them? Contact Rock House Financial to see how we can help.
Tip #2: Separate Company Issues from Family Issues
When you’re running a family business, it’s easy to blend company and family time. Family gatherings may end up in business discussions. Home issues may weave their way into the workplace. Before you know it, the family dynamic can start to deteriorate.
Make an effort to keep company issues and family issues separate. This can be easier said than done, so if you need to, set boundaries for when you’ll discuss work and when you’ll discuss family matters.
For example, if you and your spouse both work for the family business, you could create a ground rule that says you won’t discuss business matters on the weekends or past 7 p.m. on the weekdays. Likewise, you could agree that if you need to talk about family issues at work, you’ll only do so on your lunch break.
Tip #3: Make Sure Everyone is Aware of the Exit Strategy
There are 3 main options when you leave a family business: Keep it in the family, sell it to an outside group, or shut it down (this last one is an unlikely scenario but still possible). This begs the question, does your family know what your exit strategy is?
If your plan is to keep it in the family, it’s important to have a clear succession plan. Research shows that only 30 percent of family-owned businesses successfully transition to the second generation, and only 12 percent are still operable into the third generation.
The future success of your business hinges on your ability to plan ahead. Start by thinking about who will take over key leadership roles when you leave. If those family members or other key employees aren’t professionally equipped to handle the role, get them the mentorship and education they need to succeed in the position when it’s time. The last thing you want to do is pass your company off to a child who runs it into the ground because they lack expertise.
Tip #4: Have a Conflict Resolution Process in Place
Any relationship thrives when there is a clearly defined process in place for resolving conflicts, and a family business is no exception.
If you don’t have one already, create a systematic way of handling conflicts that arise in your company. For example, this process could include:
- Uncovering the true source of the argument
- Creating a safe space to discuss the disagreement
- Having a third-party mediator play referee
Tip #5: Work with a Financial Advisor who Can Offer Unbiased Guidance
Running your own company can be a lot of work. It takes focus and dedication to be successful. However, don’t forget to make time for your personal goals.
In our experience working with business owners, often times, they have a clear plan for their business and know where every penny goes. But they don’t have a plan for their personal finances, and even less have concrete plans for their own retirement.
This is where a fiduciary financial advisor can be a huge benefit.
Many times, we first meet with business owners when they’re ready to stop working or close to it, but this can be difficult when there’s little time left to plan. For example, some clients dreamed of selling their business for top dollar or passing it down to their children, but is this a likely scenario? And will there be enough money from the sale to cover a long retirement? Discussing your plans early on can make the transition easier.
Doing it all on your own can be complicated. Many families achieve more in a few hours with outside support than they could achieve in years on their own. Why? Because an advisor is able to offer objective advice and a fresh, outside perspective (remember, a little financial advice for entrepreneurs can go a long way).
The right financial advisor should help you:
- Develop a long-term strategic plan for your company
- Draw up succession documents that ensure a seamless transition of leadership
- Maintain a healthy family dynamic
- Help you find tax savings as you save for retirement and during the transition
For a more detailed guide of key aspects to financial planning for business owners, click here.
How We Help Family Businesses
Running a family business requires immense transparency and communication. After all, you don’t want family matters spilling over into your business – and you don’t want business spoiling strong family bonds.
At Rock House Financial, financial planning for family businesses is one of our specialties. Every business is unique, and financial planning is not a one-size-fits-all solution. Schedule a meeting that works for you and get the conversation started. Your future – and the future of your business – is too much to risk.