3 reasons your family business might fail

Over time, a family business can become complicated to manage even though it may have been fairly straightforward to start (and exiting the business can be even more complex!). It’s not uncommon for relationship issues or arguments over debt to be the central cause.

Family members will often treat a complete stranger with more respect that they treat each other. This can lead to anger, hurt, and resentment – often ending in a complete breakdown in communication. When you’re caught in this kind of emotional dynamics, logical decision-making can go out the window. Our experience shows that when failures occur in a family-owned business, the reason is often friction within family members.

Typical signs of problems in a business are easy to recognise, such as poor cash-flow, a declining balance sheet and a drop in profitability. When this happens the business owner seeks the help of an expert such as an accountant or marketing specilialist, to assist in these specific areas. But what if family issues are destroying the business? This is not so easily addressed and many are reluctant to seek help in these areas.

Dealing effectively with issues in the family business requires more than just making sure the numbers measure up. A level of transparency and emotional wisdom is required too. This can be hard to attain or hold on to when things are turning to custard – and clear thinking is usually one of the first casualties.

3 Common Sources of Conflict

Sustainability of a family business can be affected by many things. But if you dig below the numbers … revenue, profitability etc … there are some elementary issues that can make or break any family business.

1. Ownership of the business
No longer do the rules of the past apply, where handing down of business ownership just went to the eldest son. In today’s world we realise the eldest son may not be the best person for the job … and he may not want the job either! Handing over the family business has the ability to cause significant conflict and upset between any and all members of the family. Finding an outcome that is seen as fair by everyone involved, is often hard to achieve.

2. Control of the business
If there are family members who are non-working shareholders, they may view family members working in the business as thieves of their legacy. Whilst those working in the business will view family members who don’t work in the business as parasites. Because the resentment this can cause is detrimental to the business, the question on who has control is a crucial decision.

Regardless of how well the family gets along, any number of things … some of them completely unexpected … can trigger conflict. Developing a system to direct and control the business, will help considerably to reduce the risk of resentment and hostility.

A governance system can –
• Provide clarity on roles, rights and responsibilities of everyone involved.
• Get the right people together at the right time, to discuss the right things.
• Provide a way to resolve differences and reduce the chance of conflict.

3. Envy
When combined with all the other emotions facing the family business, jealousy can be incredibly destructive and is often a main contributing factor to conflict.

To avoid this and help ensure a more effective outcome for everyone, including the business, it is essential that dialogue is transparent, individual expectations are recognised and the difficult topics are kept on the table.

Getting the right outcome

When there is conflict in a family business, it is often a result of problems caused by individuals within the family. The good news is that it’s these same individuals who have the power to alter the outcome.

Realising this may mean working with an expert who understands the dynamics of family businesses. This consultant must have a high level of skill and appreciation of the family business, and be prepared to ask the hard questions if the outcome is to be the best one for the family and the family business.