A clear separation between family and family business: A strategic challenge for business owners


A key, but challenging aspect to implement in a family business success, is separating family relations from business relations. A business having at least two family members employed in decision-making positions is categorized as a family business. These family members can be either husband and wife, father and child/children, mother and child/children, father, mother and child/children, or just siblings. Decision-making and success solely lie in family members’ control. The definition of a family business is limited to its composition, meaning its operation should not mimic that of a family set up.
The general assumption we all have is mutual interest exists when running a business, especially a family one. Such an assumption leads to the misconception that success is inevitable. However, character differences that set family members apart should not be overlooked when setting up a business. The natural bond of the family calls for love, respect, acceptance, and learning to live with each other under any circumstances. Applying this bond to the extent of overlooking issues that affect the success of the business is a common and grave mistake. In a family, the stronger the bond, the better. In a business, however, its increasing strength may be detrimental to business survival, profitability, and growth.
Does this sound like your business? If success is still your mutual interest, then an intervention is required to separate family and business.
These are ten common signs that your family business is not separate from family:
  1. Household expenses are paid directly from the business’ cashbox.
  2. Business stock items are converted for personal/family use.
  3. Cash collected from customers is immediately converted to personal use.
  4. One person is the sole signatory of the business’ bank account.
  5. Business hierarchy follows the family hierarchy.
  6. Business operations are frequently rescued by personal savings and/assets.
  7. Duties of family members who serve as employees are not outlined and segregated.
  8. Family friends are given unauthorized credit.
  9. There is no screening, training, and no employment contracts are created.
  10. Bookkeeping is not correctly done, and the business financial results are never discussed.
If you can identify your family business in one or more of the above scenarios, then it’s time to evaluate your operations.
A family business is started with the intent to sustain the family’s present and future generations, yet, according to Harvard Business, 70% of family-owned businesses fail before reaching the second generation. Beyond the second generation - “Shirtsleeves to shirtsleeves in three generations” - is a saying that describes how likely a family business will fail by the time the third generation takes over.
On the other hand, the world’s oldest family-business, Houshi Onsen, is run by the 46th generation of the founder’s family. Enviable, right? Such success and generational sustenance require a distinct parallel between family and business affairs.
Forty-nine businesses in the world, each at least 200 years old, are still being run as family businesses. You can create the foundation that will grow your own business to such a level today.
Small steps you can take towards separating business and family:
  1. Create a formal business structure to govern the business
  2. Maintain a proper set of books and appoint a bookkeeper/accountant.
  3. Take care of the legal issues of the company
  4. Family members must be formally appointed to positions with employment contracts
  5. Do annual budgeting, planning, and control
Are you inspired to create a business as successful as Houshi Onsen? Can you see how you would benefit from separating family from a company?
If you need more guidance, fill in the contact form or book now for an assessment, and we will be in touch.

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