According to a report by Cornell University, almost 50% of all family-owned businesses in the US eventually fail. The worst part is that the reasons behind these failures are usually avoidable.
As a family business owner, you can avoid such failures by simply being more cautious. And to ensure that, here are five mistakes you must avoid when running a family business:
1. Not Setting Ground Rules
All businesses should have a few ground rules, especially for those in leadership roles. Family businesses are no exception to that rule.
Most of these ground rules are common across all types of family businesses. These include:
- Separate your personal and professional lives
- Businesses decisions should be unanimous with everyone getting a say in it
- Everyone must treat each other equally, and with respect
- Only the head of the business or the chairperson gets to veto a business decision
Another thing every family member should know about is that they cannot use money from the business for personal benefits. That could land you in legal trouble.
Even Gordon Ramsay didn’t spare his father-in-law when he was found to be spending the company’s money for personal use. As the head of the business, make it clear to all the members.
2. Not Stocking Up on Necessary Stationery
Since most business dealings are happening within the family, many businesses don’t feel the need to establish an office-like environment. However, that could be detrimental to the business.
While you create an office-like setup, you should also stock up on the necessary stationery. After all, you can’t bring everything from home to the office.
A few of the office stationery items deserve a special mention. Custom signature stamps, for instance, are crucial for the workplace.
Your custom signature stamp will contain your company’s name and logo. You will have to use it to stamp important documents. From legal documents to financial ones, plenty of paperwork will need your signature. An official company stamp alongside the signature is essential.
Be sure to stock up on smaller items like paper clips, stapler pins, and board pins too. Buying these in bulk for your stock is a great way to save money.
3. Ignoring the Opinions of Younger Family Members
Plenty of family businesses make it a habit of not taking the opinion of the young members into account. That is a step in the wrong direction. The youth may lack the experience of running a business.
But they are well-versed with the internet and the latest tech innovations, especially when it comes to social media. That is one area that you can put to good use.
Irrespective of the type of business you may be running, it needs to have a digital presence. And a lot of it will be on social media platforms like Facebook and Instagram.
So, while the elders handle the management and financial side of things, the young members can take over the digital marketing department. That will also help them integrate themselves into the business, and take on leadership roles in the future.
4. Showing Favoritism
Even in a family business, it is unlikely that only the family members will be running things. You will have other employees in the mix. Some of them might even take on executive or leadership roles. And in that regard, you can’t show any favoritism to your family members.
Being impartial in your decision-making is the only way you can develop your business. By merely promoting or praising people in your family, you might discourage the impartial playing field in the workplace. Not only will non-family members feel demotivated, but your decisions might prove costly in the long run.
Moreover, word of your favoritism is likely to spread, and skilled outsiders won’t apply to any position in your company.
5. Not Having an Exit Plan
A family member’s exit from the business means that you need to give them something in return. Essentially, they have a stake in the business. When they leave, they are vacating that stake for someone else, or for everyone else to divide it among themselves. So, they will want something in return.
This return is part of the exit plan. And it is something you need to decide beforehand, possibly while forming the business itself. Exiting personnel can ask for financial compensation. Or they could ask for a small portion of the company’s yearly profits.
Closing Thoughts
Now that you know of these mistakes, make sure not to make them during your time as the business head. Also, make sure other stakeholders are aware of these mistakes. The more you and your partners or family members know about such mistakes, the better it will be for the business.
