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The Pros And Cons Of Taking Over A Family Business
If the generations before you have built up a family business, you may be dreaming of the day you’ll take it over. On the flipside, you might be feeling pressured that your family expect you to.
Before you consider following in familial business footsteps, be sure to crunch the numbers, seek legal advice and understand the pros and cons of taking over a family business.
The pros of taking over a family business
trust in your business partners
an understanding of the strengths and weaknesses of other family members involved
spending work hours with people you love by your side
money earned stays in the family
the opportunity to maintain traditions.
The cons of taking over a family business
personal conflicts can interrupt business – and business conflicts can damage family relationships
hard to take personal time off and separate family life from working responsibilities
fewer rules and structures can lead to mismanagement
potential lack of fresh ideas
being dependent on only one revenue stream.
Succession planning should be taken seriously
Lack of succession planning is a threat to the longevity of many family businesses. Because although many family business founders intend to pass down a business to the next generation, not enough make formal plans for that succession – and that can create financial and family pressures.
Family businesses work best when they balance the needs of both the business and the individual family members involved.
By making sure every family member involved has a documented set of rights and responsibilities, it helps ensure the best possible legal and financial protection for everyone involved.
Family-run, Melbourne-based accounting firm, Aintree Group, walks the talk and so their practical tips on building a flourishing family business are worth paying attention to.
Succession planning should be a priority. Everyone in the business, and in the family, should be very clear how the business ownership will be passed on. There should be a long-term plan in place, as well as contingency plans in the unfortunate event that one of the owners falls ill or passes away unexpectedly. Read more about succession planning here.
Have everything formalised and in writing – even little conversations and procedures.
Separate ‘work’ and ‘home’ with a clear line. Problems from each environment shouldn’t cross borders. Easier said than done (we know), but it should be part of the culture of the business that personal issues are not brought to work, even when you’re working alongside people you know (very) personally.
Have clear roles for each family member, and pay the award rate for that role. Paying grossly inflated wages to your son to do menial work has the potential to grossly inflate his ego and/or grossly inflate any contempt breeding in other non-family member employees who work just as hard.
Use third party advisers for unbiased advice. Having experts from outside the business come in to take care of legalities and structures can take away the ‘bad guy’ mentality from you as the owner, or ‘head’ of the family. It also means you’re getting quality, expert help in all areas of your business.
Have a good management structure – don’t confuse ownership or inheritance with management. Everyone has strengths and weaknesses, and if leadership or management is not a strength of certain family members, it will be detrimental to your business to put them in that role.
Make sure all your employees, both family members and non-family members, are comfortable speaking with you about any issues they may have.
Clearly outline the entry and exit conditions for family members involved with the business from the beginning.
Make an effort to include non-family employees. They will already naturally feel out of the loop, and people don’t do their best work when they feel left out.
Use mentors and family business forum groups as a sounding board. You’re not the first family business in the world. While your own business, and your own family, are certainly unique – it’s likely the obstacles you face have surfaced for others, and you can use them for support and advice.
The bottom line
The feeling that someone you love – and who loves you – is part of your professional success story can help you feel protected and nurtured. It’s estimated that family owned businesses contribute 70-90% of the world’s wealth. Globally, 85% of startups launch with the support of family money.
In Australia, family businesses account for 70% of all businesses and employ around half of the country's workforce. And it’s lucrative, with the family business sector worth approximately A$4.3 trillion, according to the industry's peak body, Family Business Australia.
When it goes right, it can be wonderful and rewarding for multigenerational participants. But when it goes wrong, it can leave family finances and family relationships in tatters.
Go deeper: What is your business worth?
Financial disclaimer
The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.
