Family Business Expert suggests... First, build a strategic plan for family

One of most difficult problems confronting family businesses is building a consensus about how business should be operated, now and into future. In a non family business, answer is rather simple and obvious: Develop and implement a strategic plan.

In a family business, process is dramatically more complicated and filled with situations that can devastate both family and business.

A Strategic Plan for Family Many family business owners do not understand that before a family business can develop a successful strategic plan for business, there must first be a strategic plan for family. For example, ensuring senior generation's financial security, independent of business, generally is a fundamental requirement of family's strategic plan. Meeting this goal then becomes a critical objective for strategic plan of business.

In other words, economic engine (the business) is being asked to reach a specific financial goal of family, as opposed to reaching a business objective such as ROI, or other ratios or measures of profitability.

First Step Toward Consensus One of first steps in developing a successful process for building consensus is to clearly understand different perspectives "between" generations (inter-generational issues) and "among" generations (intra-generational issues). Inter-generational issues are generally easier to determine, and they are usually related to life stages. For example:

Parent Offspring Conservative Aggressive Risk adverse Risk taking Security conscious Development conscious Strategy: status quo Strategy: change/growth Controlling Wanting control Managing Past Managing Future

Intra-generational issues Intra-generational issues are less likely to be identified and discussed. As a result, these issues tend to "fester" over long periods of time, and they frequently present themselves in an explosive and destructive manner. Some of these Intra-generational issues include differences in compensation, perks, status, individual personal values and public recognition factors (visibility). Other problem areas are educational differences, varying levels of personal and professional sophistication, differing opinions of "value contribution," and, most importantly, spouse issues.

The sooner succession planning process is started better, and you will have more options. Another advantage: options, such as buying life insurance to fund stock ownership transfer, tend to be less expensive when owner is 45 versus 65. A child may have right to inherit business, but right to manage business must be earned. Urge your children to work at least two years outside family business so they can learn different skills and experience making mistakes. Establishing an outside Advisory Board to help manage transition allows trusted non family business professionals to help deal with tough issues. This advisory board is constructed differently than a board of directors and can be a very cost effective vehicle for bringing good advice and experience from outside. Conducting formal family meetings can help solve problems while they are small. Having experienced family business consultants like Family Business Experts lead first few family meetings can help establish and keep family focused on rules, goals and objectives. Develop non business interests. Develop financial resources that are independent of business. The best succession plan might be to sell rather than transfer. Sometimes, with family businesses, focus is so much on succession that most logical alternative is completely overlooked. If family strategic plan and business strategic plan have been done, we see two situations where selling is best alternative.

The business can't evolve with changing conditions or environment. This inability to evolve might occur because it can't find right people or because technology or environmental factors necessitate capital investment or expenditure beyond ability of family business to raise capital. The business has not been able to find and develop a competent successor. It is not easy for a family and business to objectively face reality in either of these situations and there is stigma of "defeat" or "quitting" that is often associated with a decision to abandon a goal. But harsh reality is that in either of these situations, failure is almost certain and will happen even if family decides to ignore reality and try to continue with business / transfer. So, failure becomes a matter of when not if. In either case, early and realistic recognition will let family sell business rather than lose its investment and at least have proceeds to carry on their goals in other forms.