Common Challenges Faced by Family-Owned Businesses (and Tips to Avoid Them)

Being part of a family-run business can be both enjoyable and challenging. According to SCORE, of the 28.8 million small businesses out there, about 19% are family owned, meaning the business is owned by two or more family members and the family has majority control.

Because of family dynamics and the added stress of running a successful company, family-owned businesses face some unique challenges. If not overcome, these businesses fail, taking the livelihood of several family members and other employees with them.

Here are some common challenges our business consultants see and tips for dealing with them.

Challenge 1: Generation Gap

When a business is being run by multiple generations of a family, work can be very rewarding but also tricky. For example, the founder of the company resists handing off leadership responsibilities to other family members, especially younger ones. The younger generation may have some great ideas on how things can be done more efficiently with the use of new technologies. This can lead to conflict and frustration if employees feel their voices aren’t being heard or they are being held back.

Tip: Chances are that everyone has something to offer the business. Sit down together and listen to each other’s ideas. By incorporating the experience of the older generations and the new ideas from younger family members, you will likely find some great ways to improve your processes and grow your business even more! Although older generations may be resistant to change, they should consider how to help groom younger members of the family into good leaders for the longevity and future success of the business after they are gone.

Challenge 2: Your Business Culture

With these types of businesses, it’s not uncommon for the company to take on the values of the owner’s family. Often referred to as “clan culture,” this environment, which is focused on tradition and loyalty, can make it hard for non-family employees to navigate. This can lead to high turnover rates and a decrease in productivity.

Tip: Keep all employees in the loop by communicating your company’s values during the onboarding process and then periodically. This will help everyone feel included—not just family members.

Challenge 3: Setting Up Pay and Benefits

Frequently this can become a bone of contention because the boss’s kid, brother, or other family member will earn a higher rate of pay than other employees, regardless of his or her ability to do the job. Rightly so, this will bother non-family employees who are working hard and getting paid less or receiving less in benefits. This will not only lead to low moral but also cause you to lose some good employees.

Tip: Assign compensation for each job individually and set the pay accordingly, regardless of whether it is being done by a family member or non-family member. This will ensure equity in the process and will avoid resentment and turnover.

Challenge 4: Mixing Business and Home Life

When family members work together, it can be difficult to make business decisions without personal feelings being thrown into the mix. Because of this, business talk can spill over into family events, making holidays and other occasions much less enjoyable.

Tip: Make it clear to everyone that business talk should be done at work, not at family events or get-togethers.

Challenge 5: Holding Everyone to the Same Standard

It’s easy to let things slide with family members. Maybe Uncle Eddy is serially late to work, or Cousin Judy spends more time in the break room than she does at her desk. But understand that not only does not ignoring these behaviors cause problems among other employees, it also enables offending family members to continue to do sub-par work without the consequences that you would likely hand down to non-family employees exhibiting the same behavior.

Tip: Set clear expectations and guidelines for each position from the start. Make it clear to everyone what the consequences will be for unacceptable behavior or low-quality work. This way you are creating an equitable environment with clear guardrails to all employees. Be sure to follow through with the guidelines you’ve put in place.

Challenge 6: Planning for the Future

Research shows that only about 30% of businesses survive through the second generation, and a mere 13% survive through the third generation. However, less than half of business owners have a solid plan in place for retirement.  This, of course, is setting the business up for failure in the event that something should happen to the owner.

Tip: Discuss your future retirement play with your family long before you plan on retiring. Determine who in the family (if anyone) wants to take over the business operations when you retire or pass away. Once you determine who will be in a future leadership role, begin involving those people in the day-to-day operations so they are well equipped to lead in your absence.

If there are no family members interested in carrying on with the business, make sure you have an exit plan in place. Define what will happen when the owner is ready to retire or sell the business to avoid confusion and problems when the time comes.

Also, it’s worth sitting down with an estate planner to determine any death tax that could cripple your business if not planned for ahead of time.

Concluding Thoughts

Now you know some of the most common challenges family businesses face as well as some tips to overcome them. Are you a family business owner facing challenges that are affecting your bottom line or have you questioning the future of your company? We can help! Our small business consultant specializes in helping small businesses-- family-owned or otherwise-- grow and thrive. Contact us today to learn more about our services or schedule a free 15-minute consultation with Greg