Avoiding the Pitfalls of a Family Business

Approximately 80% of all businesses in Canada are family owned. Ranging in size from behemoths like Bombardier and McCain Foods Limited, to small mom and pop corner stores, these companies form the backbone of the Canadian economy and face the same challenges as any other. However, more personal relationships exist within a family business and create many different considerations, especially when things go awry.

In recent years, the average CEO tenure across Canada has been shrinking, except in family businesses, where the same leader can often remain in place for a generation. These extended tenures can increase challenges like coping with shifts in technology, changing business models, and even modern consumer behavior. This is just one of a number of issues that can cause problems for family businesses. Read on, as we list some of the common pitfalls family businesses need to avoid.

Structural Issues

A family owned business can often start out as a hobby or a side job. At this point, nobody is worrying about a long term business plan, or filling out positions on the board of directors. As these businesses grow, the structure needs to grow alongside them, something that often doesn’t happen. This leads to inefficiencies like miscommunication, job responsibilities overlapping between staff, and lost profits. A business plan need not be a complex document, and Small Business BC offers plenty of learning resources on the subject.

Not a Good Fit

Even if they’re not the most qualified candidate, choice jobs will be given to family members because of their connections. If a publicly owned company is recruiting, they’ll go out and find the best candidate for the job. To do otherwise is to needlessly hamper the business and stall growth. To avoid this trap, insist on a level playing field for family members and non-family members alike. Have them apply for positions on their own merit against qualified candidates.

Fairness in Promotions

Likewise, it’s important for non-family members to feel there’s room for advancement and that their input is valued. Too often these qualified employees are passed over in favor of family members, leading to them leaving the company and taking their expertise out the door with them. This challenge can be surmounted by compensating these staff members fairly, keeping promotions fair and transparent, offering a profit share, and empowering them to question members of the family when they feel they aren’t performing well.

Keep Things Separate

It can’t be stressed how important it is to keep business disagreements in the workplace and out of the home. Entrepreneurs can sometimes become consumed with making their business a success. This leads to business being on their mind 24/7 and seeping into dinner table conversations and even pillow talk. Think of making a strict rule along the lines of “No business talk after 8pm”.

Succession Planning

A recent study suggests only 20% of Canadian family businesses have a strong succession plan in place for the departure of the CEO. Compounding this problem is the unwillingness of the leader to fully hand over the reins when they depart. This creates a huge problem for the successor, who will face skepticism from family members passed over for the role, as well as meddling from the retired former leader. Succession planning, with the current CEO mentoring the future leader should be considered a must to avoid this problem.