The secrets of running a successful family business
Wright, Johnston & Mackenzie’s consultancy arm, Family Business Solutions (FBS), has been providing expert advice on the complex issues that arise within family businesses to clients across Europe, North America, Asia and the Middle East since 1995.
The firm’s interdisciplinary team supports the owners of family firms with their business aspirations, addressing concerns and developing a shared purpose. Two key FBS players, Billy Andrew and Mark Bradford, talk to Vision about how family businesses can benefit from support across the three key areas of Performance, Exit, and Succession, and how together these link to successful business transition and development.
Performance
Billy Andrew, whose expertise is in management consultancy, maintains that family businesses are distinctive as operating with both emotional and economic priorities. “Family businesses can outperform many traditional businesses, often because there is a legacy involved or a motivation in it,” he says. “However, the difficult part is that they are much more complex, with a constant need to find a balance between family and business.”
Andrew offers that the three major factors in performance are the economy, market and management, and that although the first two tend to get the most sound bites, it is hard to exaggerate the often-greater impact of direction and management.
His advice is for operators to be continuously asking and answering the key question of “what are the current performance and development issues facing the business” and a straightforward management standard for answering it.
Andrew adds: “I know it sounds simple, but it is not very common for people to be able to answer successfully because they are not engaging in it every day.”
Once identified, he says the key areas from which a business can control its performance are objectives, personnel, standards, management systems and resources. A model such as this could make a serious impact upon measuring and improving performance.
FBS’s dedicated specialists can also assist family business decision makers in taking steps to achieve a better balance between economic and emotional structures in order for their firms to compete more effectively against rival corporate companies.
Mark Bradford has more than 30 years’ experience working in and for family businesses. His advice is for such companies to keep a tight financial score by assessing their profit and loss accounts every four weeks, in addition to working with key performance indicators. He says: “That is probably the one big thing we try and encourage people to do, to start looking at the management figures, or indeed get help in gathering such key information.
“This tells the performance of the business more accurately on a month-by-month basis, and then they can do something about the issue that requires attention.”
He adds: “Conflicts can develop in some way that it becomes a distraction from the main things that need to be looked at it in the business, so the conflict becomes the focus rather than the business.
“Our job, as neutral individuals who are not family members, is to facilitate communication that has been needing to happen for a while. That is the role we play here, we are effectively getting those discussions to happen.”
Succession
Sooner or later another relative will take over a successful family business and a well-prepared succession plan ensures that the transition of control runs smoothly.
Although most family businesses work together well, Andrew says: “Conversation is a big challenge, as it needs sensitivity and respect for each other’s opinions. But it is also essential – you can’t not have it.
“If you do not open up this subject, decisions can get made for you rather than by or including you, and many times these conversations are better facilitated with a neutral party involved.”
At FBS, advisors emphasise the importance of clients planning well ahead of time for an orderly succession to take place.
Bradford agrees: “Without a plan, events will take over and then the outcome is not what everybody would expect.
“If there is a plan – and plans can be changed – everyone knows what to expect.”
“It is all about meeting everyone’s expectations, for the senior generation retiring or exiting, and for the future generation so they are not thrown in at the deep end or overly protected.”
However, common succession pitfalls include the “do nothing option”, where issues pass through the generations unaddressed, and for parties to assume that a succession is already planned.
Andrew explains: “There is [sometimes] a perception in the family that it is sorted, but other family members have not been consulted and sometimes even the person who it is assumed will take over has not been consulted.”
Such difficulties can be avoided by consulting specialists who can effectively communicate with each family member, collect and collate their business aspirations and look for a common purpose.
FBS can act as a hub for family firm clients, where a report and action plan can form a brief for the family and business professional advisors such as lawyers, accountants, tax advisors and management consultants to work out a shared goal for all family members concerned and then make it happen. Also, objectivity is essential.
Bradford adds: “You have a different type of discussion when you have a non-family member in the middle of it. People then say things to each other that they would to an outsider and that is a good thing.”
Exit
A comprehensive exit plan can maximise the profits of a family business when it comes to be sold – and a strategy prepared from the very beginning makes investors aware of the long-term proposal.
While FBS does not advise on marketing the sale of businesses, the team recommends that families consider the complexity of ownership and management and how it could influence a potential buyer.
Bradford says: “It is important for family businesses to recognise is that if they have quite a lot of family members working in the business, but none want to take it on, that could be seen as a downside for a future purchaser.”
When senior members of a family firm are shaping an exit strategy, Andrew advises: “They need to consider the impact and the time frame for themselves, the family and the business, as lots of people think retirement is appealing but find it difficult it when it kicks in or go into another business or set up something philanthropic.
“Don’t just consider the business value today, but how that could be developed if your exit plan was five, ten or 15 years ahead, and how that business should be structured and developed accordingly.”
Both Andrew and Bradford counsel that families should consider the type of purchaser they hope to attract to the business. It could be that their overall goal is the preservation of the family firm in some form, so they would want a buyer prepared to invest in the future.
Regardless of the reasons for the exit, it is not unusual for owners of a going family concern to have a deep emotional attachment to the company – although that factor can work in their favour, resulting in a higher demand price.
However, as Bradford maintains: “The key is having a plan and considering what you are trying to achieve at the end.”
To find out more about advice available on performance, succession and exit strategies, visit www.ukfbs.co.uk or telephone 0141-222 2820