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Family run businesses - 8 things to look out for

New Zealand’s private sector includes thousands of family run businesses, spanning virtually every industry imaginable. It’s only natural that for many people in business, the most trustworthy partners are the ones we know and love - our families.

RightWay

Sep 09, 2021

Many of New Zealand’s largest most successful publicly traded companies have their roots in a family owned and operated organisation. But is a family business always the best path towards success? In short, no - like any team of employees and leaders, a business’s success comes down to having a clear direction, making smart business decisions and hard work.

 RightWay works with many family run businesses, helping them just as we do other clients. Through this experience, we’re able to understand the typical challenges this type of business brings and how to best work through these. Read on for some of the more common of these issues or things to consider.

1. Assuming people you love are also good at business

It’s easy to fall into the trap of hiring those who are most important to you - you trust these people the most, and the idea of giving them an income at the same time is attractive for many business owners.  

As hard as it may be, we encourage any business owners to put their family members through the same scrutiny as any potential employee - their work history, qualifications, attitude. You’ve got the inside scoop on what they’re like at their ‘low points’, so bear in mind that as an employer you may have to deal with that too.

It’s essential that you don’t skip over the objective criteria for a role simply because of a desire to have a family member in the position. Failing to apply this lens over your hiring decision can result in some very stressful situations down the line, such as:

  • Financial decisions that detriment the business
  • A lack of productivity or efficiency from that family member
  • Mistakes or poor quality work

These are of course all potential challenges with any employee you bring in. But the difference here is that you have an existing personal relationship to maintain, making these even more stressful scenarios to work through. The last thing you want is to have family members falling out with each other.

Hiring a family member into the business can be incredibly beneficial to your success, provided there are existing skills or raw potential to make them successful.

Another key consideration is that poorly performing family members can undermine good work relationships with other employees. This then becomes a very complex area to navigate and usually ends with good employees leaving because the personal relationship between family members embedded in the business and other employees becomes conflicted.

2. Expecting family members to get involved in the business regardless of their own dreams

It’s likely you’ve heard of this scenario before because it’s still very common; a long-standing family business expecting adult children to continue working inside the business.

There are many instances where younger family members are highly motivated to get involved in the family business, with a clear understanding of what’s required and the long-term view to assume ownership. Many successful New Zealand businesses have this story to tell.

Unfortunately, there are also situations where children have never been given the opportunity to explore careers outside of the family business. This expectation to carry on in the business can start at a very young age, even with the best of intentions by parents. While we’re not here to give advice on parenting, we do know firsthand the issues family businesses run into when adult children are desperate to leave, unmotivated, disengaged or worse, left feeling guilty about going and pursuing their own career.

For this reason, we’d suggest that family businesses provide the opportunity to work inside the business, while encouraging family members to pursue qualifications and work experience wherever they like. Some of the most effective family employees have worked in a variety of roles externally, before coming back into the family business. The advantages here include:

  • Good work experience
  • Understanding of what it means to be an employee
  • A better perspective on business practices across multiple entities
  • New skills/qualifications that can benefit the family business
  • A reduced ‘flight risk’, having joined simply because they want to, rather than being forced to
  • More motivated
  • Appreciation for the work environment afforded to them

If your business has family members working inside it, we strongly recommend that you ensure employment compliance practices are upheld, just as you would do with a non-family staff member. Providing employment agreements, robust job descriptions, regular opportunities for feedback, and communication around their long-term career goals is vital to their feeling valued and therefore engaged in the business’s success. If family members feel like they don’t have the freedom to leave and pursue other goals, it’s unlikely they’ll remain a valuable asset to the business over the long term.

3. Taking shortcuts when it comes to employment and HR matters

This issue is disturbingly frequent in family businesses. In fact, there are many instances where hiring friends or family under an irregular model of payment or management has caused big issues down the track, and unless that family member or friend takes drawings OR dividends, is entirely illegal!

Staying compliant with employment and labour laws is absolutely critical; even if both parties may be happy to work on more of a casual arrangement these laws still apply.

Employees are entitled to certain rights (depending on the nature of their employment), which may include:

  • Minimum guaranteed hours of work
  • Annual leave entitlements
  • Public holiday paid leave
  • Health and safety
  • Formal employment agreement
  • Rights around probation, dismissal etc
  • A fair process around employment issues including disciplinary practices
  • Advice on where to seek help with disputes
  • Breaks

Do not assume that a family member will or should forego these rights simply because they’re a family member.

A family employee should still feel comfortable to raise issues such as requesting a pay review, support with resolving a staff dispute, or help when feeling burnt out. Being a good employer isn’t just a matter of staying lawful, but it’s the best way to grow a strong business. Don’t neglect employee care simply because of an existing personal relationship.

4. Protecting time between a couples personal and business relationship

A common structure of small businesses in New Zealand is a couple who also run a partnership or split ownership of a company.

Every town in New Zealand will have examples of successful couple-run businesses, but it’s important to understand that these work because of a good professional partnership as well as a strong personal foundation of trust and respect. A couple in business needs to feel comfortable challenging each other without fear of arguments, much like any other partnership or dual shareholder owned company.

The big challenge with any couple in business together is when there’s a blurring of the lines between personal and work time. Taking work home with you isn’t uncommon when you’re the owner, but couples need to protect their personal lives from the business, even if that requires some deliberate planning.

The danger of letting the business and relationship overlap freely is personal issues can be brought into the workplace, or work discussions can be dominant at home - both scenarios are damaging.

If you’re looking to get into business with your significant other, make sure you:

  • Have clear boundaries between work and personal lives
  • Be clear on expectations around each person’s contribution to the business and how this will be valued (drawings, salary or dividends)
  • Plan your approach for resolving disagreements
  • Don’t skip over the important legal details about ownership and shareholding
  • Employ the expertise that neither of you have
  • Always keep communication high
  • Ensure both partners are prepared to go through difficult periods of business together

Couples that respect the boundaries of business and personal lives can go on to create hugely successful businesses, leveraging their close teamwork for amazing results.

5. Having a standardised staff development plan that applies to everyone

Growing staff capabilities is part of being an employer. It’s not only important to reduce staff attrition but helps your business in the process. Having a professional development plan in place for each staff member also offers a useful framework on which to regularly meet and coach your people, identifying areas to improve and responding to their own objectives with actions.

A family business should do their best to adhere to the same rigour around professional development as any other business. The desire for growth doesn’t disappear simply through working in a family operation. In reality having a clear path forward to more responsibility, remuneration, and fulfillment, may be critical to retaining them long term.

6. Planning for departures

Family businesses, like any other business, will experience staff churn of some kind - whether it’s other career options or retirement. Make plans around how to resource the business in the event people do leave. One of the best things to do here is to make sure there’s a clear job description for each role, well in advance of anyone leaving. That way, the transition to a new hire is less about replicating particular personalities and more about the duties required.

This need for planning applies to every business, but it’s something that families need to be extra careful with, given it’s natural to take close relationships for granted and skip over the admin of organisation structure, job roles, and descriptions.

7. Identifying and communicating the succession and ownership plan

Many long-standing family businesses have a model whereby the next generation inherits ownership. If a family business has many different members involved, it’s incumbent on the existing owners (such as the parents) to ensure a proper, legal process has been established to facilitate this transition. Such a process requires careful thought and professional guidance.

As the owners, you should make the intentions very clear to all involved, both informally in person and stated in documentation. Getting in front of succession planning in advance will allow for a strategic approach to many aspects of business planning and smooth out any disagreements or misunderstandings. 

Unfortunately, when a business doesn’t have an official succession plan in place, it can be very painful for family members grieving the loss of their parents while at the same time not knowing where they stand with regard to ownership.

8. Establishing which family members are suited to which roles

Any good business should have a structure in place to sustain success regardless of whether it’s a family member or an outside hire. Unfortunately, when personal relationships and business mix, an easy trap to fall into is where individuals assign themselves certain duties or are given these tasks without an objective review of whether they have skills that are fit for purpose. This is a dangerous move for any role, but particularly when it comes to financial matters, where a mistake could derail the business.

Instead, a business with family members whose capabilities are limited in certain areas should look to outsource help or new hires to ensure all the functions are resourced correctly.

It’s also critical that both family members and non-family employees are offered opportunities for roles inside the business (apart from ownership) on an even playing field based upon merits and fit. Doing so is not only in the best interest of your business’ success, but for a larger business it is critical to ensure company culture remains positive without feelings that nepotism exists.

Need outside support with growing a successful family business?

You don’t need to go it alone - we’re your partner for all accounting, tax, HR and business development. Often a family business will have gaps in capabilities - that’s where we come in.

Are you running a family business, or perhaps considering starting one? RightWay works with hundreds of businesses that involve more than one family member, so we know how to provide you with the right guidance. If you need impartial, external business advice, chat to our team today.

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