Family-owned businesses can be one of the most rewarding types of business, but also can be one of the most difficult to manage, especially when it comes to working relationships. Everything from advancement and salaries to hiring new talent and changing vendors can be overlooked or mishandled so as to not offend a family member.
Smart Business learned more from Donna Mittendorf and Jim Terrell of Comerica Bank about managing a family-owned business and how to prevent the problems and pitfalls that typically arise when working with those with whom you have close personal ties.
What are the advantages of having a family-owned business?
Donna: There are numerous advantages to having a family-owned business, such as the continuity it affords with customers and vendor relationships. Customers and vendors know your family name and will continue to work with you as a result. There is also a built-in loyalty to the business, and its long-term approach and nature gives it a competitive edge. Family-owned businesses tend to spend money wisely since they are building wealth to pass on to future generations, and they are typically more stable as they are less likely to make radical cutbacks during an economic downturn.
However, don’t turn these advantages into complacency. It’s easy for a family business to become complacent and not welcome change if the business is successful. The problem is your competition is keeping up with technology, product advances and other advancements that could render your business ineffective.
How can you minimize conflict when working with family?
Jim: It’s difficult to balance business relationships with family ties. A clear understanding of the roles and expectations of each family employee can prevent many of the problems that tend to pop up in family-owned businesses. Keep everyone accountable and, when a major decision needs to be made, make sure it’s made with the growth and stability of the business in mind.
How should a family-owned business plan for change?
Donna: If the business is going to be handed over to the next generation, the decision needs to be made well in advance. Other issues like how management will change with the new generation and what the responsibilities are for each member also need to be addressed well ahead of any leadership change.
Business owners also need to make sure to have their estate planned out and have items like a will and stock transfers in order in case of a sudden emergency. It’s also a good idea to have leadership transition and family ownership plans in writing so there is no confusion.
Family businesses often take great pride in their traditions, but make sure you don’t take this to an extreme and forget to change and grow. This is one of the most common mistakes family-owned businesses make and one of the main reasons some are unsuccessful.
How should family-owned businesses handle succession?
Jim: There can be resentment among family and longtime non-family employees if succession is not handled properly. It’s not easy to bring in a son or daughter and introduce him or her as the new boss to people who have been working at your business for decades. Make sure family members are brought in at the bottom, or close to the bottom, and let them work their way up. They will feel they earned the position and there will be less resentment from other employees than if they start off in a corner suite.
When should a family-owned business look for outside help?
Donna: It’s a good idea to look for outside advice on plans for succession management, buy-out arrangements or in the event of aging of principals, illness of an owner, or children who want in or out of the business. Business owners should seek reputable organizations and professionals and assess what each can offer. Ask the institution for samples of the work they have done and if possible, try to get previous customers’ testimonials. Comerica advisers can help with everything from estate planning and portfolio management, to trusts and insurance.
DONNA MITTENDORF and JIM TERRELL are senior vice presidents for Comerica’s Texas Small Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth & Institutional Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas, Houston and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. Comerica reported total assets of $55.0 billion at September 30, 2010. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.