Four Family Business Pitfalls and Their Solutions
While running a business is a lot of work and can be stressful at times, there is an undeniable sense of accomplishment business owners have in what they have created and what they are able to provide for their families, their employees, and themselves. But what about the challenges business owners, and, more specifically, family business owners, face?
Throughout recent conversations with many business owners, I looked for common themes and challenges, including commonalities even among businesses from entirely different industries. I was not looking at the typical employee or sales issues but rather the deeper issues that keep business owners awake at night. I want to highlight a few of the challenges I discovered that even successful business owners face, along with some suggestions for solutions.
Challenge #1: Lack of Willingness to Delegate
The top challenge business owners face is a lack of willingness to delegate. The family business owner knows everything about their business. They created it from scratch and have watched it grow. Many first-generation family business owners struggle with giving up even the smallest amount of control. Instinctively, they know that delegating certain tasks would free them up to do more important things that only they can do, but they have a hard time allowing someone else, even a family member, to help.
Solution: Identify your Strengths and Weaknesses
One solution to this challenge is to take a step back to get an objective look and identify your strengths and weaknesses. Make your weaknesses stronger by surrounding yourself with capable people who complement you in your areas of weakness. This does not mean blindly giving away the keys to the kingdom. Identify family members who show potential and gradually give them more responsibility. As you feel comfortable, you can relinquish some of these areas to them so you can spend time doing what you enjoy most.
Challenge #2: Not Having a Succession Plan
Challenge number two is not having a succession plan. No one wants to think about their own death, but that’s exactly what you must do for estate planning. Sometimes, though, it’s harder for business owners to think about not being able to run their own businesses anymore. But a succession plan is merely a way to identify and develop new leaders for the future of the business.
Solution: Make Succession Planning Part of Strategy Sessions
The solution to this challenge is to start as early as possible. If you don’t have a succession plan, begin this family conversation now. Also, don’t assume that your eldest child will be the successor. There may be others more suited for this responsibility. Another thing to consider is that the younger generation may have expansion ideas. The best solution is to make succession planning a regular part of your ongoing strategy meetings.
Challenge #3: Owner Wants Adequate Liquidity
A third challenge the business owners I talked with face is the prospect of who will purchase their business and for how much. They are concerned about what their lives may look like after they are no longer working and earning full-time.
Solution: Discuss Business Transfer Sooner Than Later
The solution to this challenge is to discuss the business transfer years in advance. This subject is not something you want to explore just a year or two before the first-generation owner wants to sell or step back. As soon as a family member or a loyal employee has shown an interest in the company’s growth, talk with them to find out where they see themselves with the business in the future. One more point I want to make about the possibility of a future sale is that considering this prospect is as important as the founding of the business was. And even if you don’t have a desire or don’t end up selling the business, the process of evaluating it with a future sale in mind will help the business be more efficient.
Challenge #4: Lack of Communication with Professionals
One last challenge I want to mention is when business owners lack communication with the very professionals who are supposed to advise them. If a business owner does not feel like they are getting value from a professional, they will likely hold back on their communication, inaction will occur, and you won’t get the solutions you need. Other times, business owners are reluctant to pick up the phone to get an answer because they know this incurs more cost.
Solution: Hire a Well-Connected Professional
How do you fix this problem? Find a professional who is well-connected. Ideally, you want one professional to act as a “general manager.” This person should be responsible for bringing ideas to you and their team of professionals when appropriate. For simple questions, your key professional may be able to answer them or get you the answers by leveraging relationships in their network. For more complicated issues, you will need to pay for those services, but those professionals will be brought in as a trusted referral to help bring specific solutions for your business.
As a business owner, you know multiple challenges arise on a regular basis. We believe it requires a systematic approach to solve the challenges family business owners encounter. These solutions also are best met as part of a team effort with a wealth management mindset.
Chris Zeches is a certified financial planner and managing partner at Zeches Wealth Management. Zeches Wealth Management has one singular focus: To financial planning and tax expertise to help multi-generational families and business owners achieve more of what they love.
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