Building Your Business
Feargal McCormack from PKF-FPM recently gave a seminar for Family Businesses

3 February 2016

PKF-FPM Client Matters

Family businesses are at the heart of our economy. Three quarters of all businesses in the UK and Ireland are family owned and it is estimated that together they employ more than 50% of the entire workforce. While their unique ethos can be a competitive advantage, family owned entities are as susceptible as any other business to the pitfalls of failure. Effective leadership is the key to success and getting a grip on the business is the first step towards building a sustainable future, writes Feargal McCormack.

 

Family values

What differentiates family owned entities from other businesses is their unique ethos. Although intangible, this manifests itself in positive attributes such as a willingness to share knowledge, commitment, a stable culture, speedy decision making, flexibility, long range thinking, reliability and pride. Family businesses are characterised by their sense of belonging, a common purpose that unites the workforce. Although more conservative than other businesses during boom times, family owned entities often outperform their competitors during a downturn. Like all businesses, family businesses evolve over time. Alongside the owners, stakeholders may extend

to include:

• family members who are not actively involved in the business either as employees or owners,

• family members who own shares in the business but who are not employees,

• external investors who own part of the business but who do not work in it and are not members of the family,

• non family management and employees,

• owners who work in the business but who are not family members, and

• family members who work in the business but who do not own shares.

 

Balancing the commercial interests of the business with the aspirations of these diverse stakeholders is a challenge that requires considerable leadership skill. Conflict can arise for many reasons — resistance to change, emotional issues, lack of financial resources to fund succession, lack of a formal business strategy and issues related to leadership and legitimacy.

 

An ad hoc management style that served the business well in its early days can become a disadvantage over time and a threat to long term sustainability.

While almost 9 out of 10 family business owners believe their family will still control their company in five years time, emotional factors often blur that vision. Statistics show that poor succession planning is one of the key reasons why fewer than a third (30 percent) of family businesses survive beyond the second generation. Indeed, just 12 percent are in business after the third generation and only 3 percent outlast the fourth.

 

More than any other factor, the quality of its leadership determines whether businesses succeed or fail.


LEADERSHIP

To get a grip on the family business, the first task for the leadership team is to ensure that everyone understands the business’s core values, focus and what differentiates it from its competitors. A united team with a common vision and purpose is required to deliver sustainable growth. All members of the team must become warriors, committed to their jobs, meeting client expectations and identifying future business opportunities. No one should be work shy. With the right people on your team, everything becomes possible. An effective organisational structure establishes and aligns individual roles.

• The Board oversees the business’s vision, values, strategic direction and focus. The role of the Board is important and family businesses should consider bringing in non-executive directors to strengthen the board’s effectiveness and independence.

• Senior management is responsible for translating the Board’s vision into a strategic business plan that they then implement, supported by unit managers.

• Unit managers supervise the business’s functional operations, and

• Employees are responsible for carrying out their duties in a manner consistent with the organisation’s vision and values. Successful businesses place a strong emphasis on internal communication and create a customer-led, sales-driven culture. They differentiate themselves from their competitors by establishing a reputation for lateral thinking, innovation and organisational excellence. They invest in innovative and efficient IT systems. All of this is underpinned by effective cost control, working capital management, people management and staff retention.

For more information visit PKF FPM

 

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