Strong relationships and shared values are key to any organization’s success, so it’s no surprise that family businesses continue to be a driving force in our economy. Out of nearly 29 million American small businesses, 19% are family-owned.
Family businesses can be any venture run by two or more family members, with majority control and ownership held by the family. Examples can range from a local eatery owned by a married couple all the way up to Fortune 500 companies.
Whether you’re part of a multigenerational business or partnering with your sibling on a new venture, you may see the benefits of a family business firsthand, but you may also face unique challenges that come with close family relationships.
Let’s look at some of the key advantages that family businesses bring to their work, and how to address special considerations along the way, to help your business play to its strengths.
1. Close Ties
When the business is a source of family pride – not to mention financial well-being – it’s natural that the whole family will be personally invested in the company’s success and pull together to overcome challenges. Family members often have a deeper understanding of each other's strengths and personalities, which can help them work together more effectively.
Navigate Disagreements: Family members may have differing ideas for the business. Those in leadership roles should be open to feedback, but also empowered to make key decisions. To keep a healthy separation between work and home, set clear boundaries (for example, not discussing business at the dinner table).
2. A Shared Vision
Unified by common values and committed people, family businesses may offer a unique selling proposition that earns customers’ loyalty. A strong and employee-centric internal culture can lead to stronger brand, which helps explain why many family businesses enjoy lower employee turnover and greater trust from the public.
Think About the Future: Continuity is key. Are younger family members ready to step up when you or another family member retires? Thoughtful legacy planning can help you prepare for the logistics and family dynamics associated with transitioning the business to the next generation.
3. Flexibility
Smaller family businesses can be especially nimble. With less hierarchy and fewer outside stakeholders who need to sign off on decisions, these businesses can often move faster to adjust to changing market conditions or customer needs.
Keep It Professional: Don’t overlook poor performance or behavior from any employee, family or not. You can help reinforce accountability and maintain a professional workplace through a clear governance structure and policies. Many businesses rely on oversight and guidance from a board of directors or advisory board.
4. Financial Control
Greater control over financial resources can help family businesses stay frugal during lean times and reinvest profits during periods of strong performance. As the main stakeholders, families can often take a longer view, looking past near-term profits to focus on long-term growth.
Manage Finances Wisely: Compensation for family members can be a sensitive topic. Wages should be appropriate to your market and industry, as well as team members’ individual contributions, to help prevent pay-related conflicts or resentments. Since your business may be crucial to your family’s long-term financial security, it’s a good idea to compare small business retirement plans – such as SEP IRAs, SIMPLE IRAs and 401(k)s – to find an option that’s well-suited to both family and nonfamily employees.
5. Experience
Deep experience can help family businesses anticipate trends, make informed decisions, and deliver better-quality products or services, as well as cultivate trusted relationships with customers and business partners.
Stay Sharp: Relying on long-established routines can delay adoption of new technology and industry best practices. Family members should be committed to ongoing professional development, which can include attending industry conferences, taking courses, or pursuing advanced degrees.
6. Diverse Perspectives
Having family members of different ages involved in the business can introduce the company to new ideas. For example, younger family members may be able to bring technology skills that add efficiencies or help the business reach the next generation of customers through new products or digital marketing strategies.
Address Generation Gaps: You can help younger family members prepare for future leadership roles through on-the-job training and mentorship and by involving them in company decision-making. What can you do if core family members are approaching retirement age, but younger family members don’t have the inclination or skills to step up? In this situation, promoting trusted long-time employees or bringing in experienced outside professionals may be the best way to support a smooth leadership transition.
A Proven Partner for Family Businesses
At Amegy, we’ve specialized in serving family-owned businesses since the beginning. Explore our online resources and newsletter, and speak with a banker to learn how our personalized approach can make a difference for your business and family.