Why Family Businesses Fail

kelowna accountantKelowna accountant Ken Davidson reviews a recent article discussing the top ten reasons family businesses fail written by Leah Golob.

There was a recent article published in The Globe and Mail entitled Ten Reasons Why Family Businesses Fail and I wanted to address it here because it really hit the points on the head. I’m not going to get into every point, I’m just going to cover a few of the really strong points that resonated with me.  If you would like to read the full article, you can check it out here.

Poor Succession Planning

This is truly the key to most family businesses failing. Not having a plan of who is going to take over the business and not planning your exit strategy.

I have a client who is changing his job and currently works inside a family business. He’s been there for almost 10 years and the senior family member hasn’t recognized that he has given any thought about succession planning.

Unfortunately, that particular person is not one of my clients but it’s still very sad to see because that senior family member doesn’t recognize he has his succession plan built-in right now…and he’s letting him go. He’s not prepared to bring him up to speed on the plan and where the business is going and will now be left to start over on his unknown plan.

Related: When Is It A Good Time To Sell Your Business?

Lack of Trusted Advisors

This directly addresses what I have said many times in my blogs here on BusinessGrowthStrategies.ca. All businesses need to have a trusted advisory group, a secondary board or a group of individuals.  All of which are advising you  and that do not directly benefit financially from those decisions. This gives you the professional, trusted and unbiased decision-making process you need to succeed.

Different Vision Between Generations

What is it that the new generations want? Where is the business going? The problem with this is that generations inherently have differences in vision and want different things. I don’t like quoting things about Generation X or Y or anything like that since that’s not my area of expertise, but they truly are different.

There are absolutely going to be cases where people born in Generation Y will have a Generation X mentality but on a global level, there are differences and they need to be addressed.   The “old man” may see his son as lazy because he works on a different schedule.  These differences can help the business succeed if they are all discussed and become part of the planning.

Exclusion of Family Members Outside The Business

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There’s no way you could fit every one from the family into the business, in many cases that’s just too many people. Over my years spent as a business advisor and Kelowna accountant, I can safely say this is true for most businesses, at least.

You have to make sure the people that are involved in the business really understand the benefits of what the family business is doing for the family as a whole and how they truly are involved in the business.

Since it’s a family business, it does affect everybody in the family.  Those at home looking after the family, those working one day a week and those family members who help keep the family peace all play a role, whether they’re in the business or not. Everybody is affected by the family business somehow whether it’s estate planning, employment or the decision-making process – those issues have to be dealt with.

Related: Taking A Risk In Business: What Your Accountant Won’t Tell You

Not Using The Family Advantage

There’s always conflict within families, to some extent. Whether it’s brothers and sisters arguing or mom and dad disagreeing, there is always a level of conflict within a family business. However, if you bring in external conflict into that family business, like another competing business, the whole family will gel together against that conflict. That does not happen in a regular business!

That’s the huge advantage of a family business.

Family businesses have great potential to be extremely successful when they leverage the inherent strengths and create systems and processes to compensate for the more challenging aspects of the business.

Make sure that you check out Leah’s full article at the Globe and Mail to see the other 5 points mentioned. Even if you aren’t running a family business, it’s a fantastic article that’s well worth checking out as many points apply to non-family businesses as well.

Do you have a question that you want answered by Kelowna accountant Ken Davidson? Leave a message in the comments below!

 

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