Family businesses remain the backbone of the UK economy, come in all shapes and sizes and operate across a large range of UK sectors.

Family businesses come unique challenges that can affect business decisions, business success, leadership, personal life, wealth and succession planning. The more interconnected a family business is, the greater the potential for significant challenges and family conflicts.

In this blog, I will look at the common challenges that can face many family businesses today.

Understanding family businesses

Defining a family business and its unique characteristics

In a family business, the majority of ownership and controls lies within the family and where decision-making is influenced by multiple generations of a family.

Family-owned businesses in the UK range in size from small business (i.e. spouses) to SMEs, multi generational businesses and larger companies (for example James Dyson Limited and JCB here in the UK are amongst some of the largest family businesses).

Many family businesses embody the strategies, values, heritage and culture of the original founding family.

Why are family businesses different from other businesses?

The differences between family businesses and other traditional businesses largely come from their family centric decision-making process and ownership that can create a strong culture, values, trust and loyalty. This can help to align interests but can also complicate decisions due to complexity of family relationships.

Often, decision-making processes can be quicker in a family business because of centralised, aligned leadership and shared vision allowing them to capitalise on opportunities that more complex management structures in competitors cannot. However, family businesses can face unique challenges, compared to other businesses and need to carefully consider how they overcome these unique challenges.

Common challenges facing family businesses

There are several challenges that can be common in a family business, and some of these can be:

Roles and boundaries

Often in a family business, the individuals can have both defined formal business roles, but these often overlap with more informal roles. Sometimes roles are defined by age or family hierarchy, rather than being based on expertise or knowledge. This can lead to inefficiency because the best talents can be underutilised and overshadowed by older, more senior members of the family.

To overcome this challenge, the leaders must define clear roles, job titles, responsibilities and boundaries for each family member. This could be as simple as looking at primary responsibilities initially such as strategy, people, financial, production/operations, sales & marketing, customer service/experience.

Work-life balance and personal relationships

For many business owners and employees, maintaining a work-life balance is a challenge, but this is even more so for people in many family owned businesses.

Drawing distinctions between home and work can be extremely challenging and the overlap of professional and personal relationships can become difficult to compartmentalise.

The demands of running a business can easily cause a business owner to neglect other aspects of their life, including family commitments and personal relationships.

You can overcome this by:

• Having clear separation between work time and family time.
• Create silos and boundaries both in terms of roles, conversations and finances.
• Create a clear identity outside of the business. Use local community, hobby groups or sports clubs to help you have unique identities away from your business.

Rivalry amongst siblings

If you’ve watched the TV drama Succession, then you will have witnessed sibling rivalry at it’s worst and can see how this can be a huge challenge!

Often family owned businesses don’t make it to third or fourth generation because of issues amongst siblings that can pose a significant challenge through the generations and around business succession planning.

Whilst a parent is involved in the running of the company, mediation is possible, but what happens when you pass the business onto the next generation? Who will be there to handle disputes?

If the rivalry is based on differing values, management styles, goals or risk appetites, then formalising a clear business plan that can provide unified understanding and direction and ensuring each family member is in the correct role based on their differences can overcome some of these challenges and reduce conflict of future generations.

This type of sibling rivalry may also be due to wanting to compete for parental recognition. This type of emotional rivalry can be improved in the company through introducing more formal business recognition and reward that is fair across family members.

Financial management

Some of the biggest challenges for family companies can be around finance and growth. These often come from mixing personal and business finances which can create complications and potential conflicts among family members. The conflict can often come between understanding what belongs to the business and what belongs to individuals.

It’s critical for business growth for families to make clear decisions about reinvestment, dividends, and financial growth. But in a family business this can become contentious when family members have different personal financial needs. Some family members may want short term financial gain to fund their lifestyle, whilst others may want to reinvest profit back into the business to fund future growth.

Having clear strategies for business growth, policies, and procedures that separate personal and business finances, can help. Having a board of directors that includes non-family members, creating a family council and using trusted external advisors, such as accountants to help advise can help to overcome this challenge.

When it comes to personal finances within families, family offices can also be used as the place where the personal financial affairs of the owners and related family members are overseen and managed. A family office can support and manage the financial affairs of each family member, such as personal tax, IHT and estate planning, investment management and asset protection. But family offices can also support and assist with protecting the family vision and legacy, ownership transitions, business structure management, leadership transitions and passing on family wealth.

Business growth and innovation

Many family owned businesses have a desire to preserve tradition (often from the older generation), which can often stand in the way of future change, growth and innovation.

In a rapidly changing business landscape that includes the need to embrace new technologies, families need to balance the desire to preserve tradition and legacy with a drive for innovation and change.

Family business leaders wanting to navigate and embrace innovation and change whilst preserving heritage can benefit from open dialogue between generations, fostering a respect for new skills and knowledge offered by the younger generation and seeking external guidance and support.

Understanding that innovation can help the business thrive in an ever changing world and is core to successful family businesses of the future is key when defining family roles and future strategy.

Managing conflict

Conflicts and misunderstandings often exist in family businesses so managing these conflicts is key not just to the survival of the business but to the survival of the family.

The impacts of conflict in a family business can be catastrophic. At their worst, they can lead to the destruction of the family business or create lifetime divisions in personal relationships with other family members.

Read our blog about avoiding and managing conflict in a family business here.

Succession planning and family dynamics

Succession planning is one of the critical factors for family members and an area that can often cause conflict and pressure on family ties. There is often tension around timing and the ultimate exit route current owners and hand the business to the next generation.

Sometimes there is a lack of trust around the next generation taking on full responsibility, conflict around post succession roles and there are often more emotions involved on all sides.

There can be an assumption that younger family members will naturally want to take over the family business and this is not always the case, which again can cause tension.

Within some families, there can be a misconception that succession only largely affects the family members, however, non family employees can also be hugely affected by both the changes and any conflict that arises as a consequence.

Engaging with the next generation and non family employees and management team early can foster a smoother path to succession. Early succession planning, collaboration, open communication, clearly defining future roles and transparency will foster a culture of trust and alignment that should help ease some of the conflict that succession planning can bring.

A clear and well-communicated succession plan, including clarity on future leadership and a defined process for transferring ownership and control, can help overcome family succession planning challenges.

Often, we find that hiring an intermediary, such as Barnes Roffe to help lead and guide the succession planning process can encourage open conversations, a clearer process and minimise conflict.

How can Barnes Roffe help?

At Barnes Roffe, we understand the unique challenges faced by family businesses and offer expertise and guidance throughout the business lifecycle. We are here to support both the current leaders of the business and the next generation to ensure the business is protected, business strategies are aligned, family wealth is maintained and protected, individuals are supported, and a smooth transition and business succession is achieved in the best way possible.

Contact us for more help and advice.

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