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  • Service: Enterprise, Family business
  • Type: Business and industry issue
  • Date: 7/1/2013

When Family means Business: Risks to Avoid 

When Family means Business
Every business presents its owners and managers with daily challenges. A family business, in particular, presents unique risks that could cause your business to fail. If you’re able to recognise and tackle these risks as they arise, you’ll be able to minimise their impact, keeping your business on the right track.

The following risks should be avoided or dealt with swiftly in order to ensure they don’t negatively affect the future success of your business…

Nepotism

One of the greatest risks to a family business is nepotism – the favouring of family members simply because they’re family. Placing someone in a management position because they’re the son of the founder, rather than being suited for the job, is a risk with serious fall-out potential.


The individual might not be suited to the position, unable to handle the job and its pressures, or might become complacent as a result of lack of consequences. You also risk alienating other staff members. Seeing others promoted simply because of family ties will result in unmotivated, disenchanted staff who will quickly feel as if their contribution lacks value.


Nepotism does not inspire or motivate and this will ultimately affect the success of your business as talented managers won’t stay or grow within the organisation.

Money matters

If not properly managed as its own entity, family members can easily confuse the family business with their own personal ‘bank’. It’s important that you establish boundaries between personal and organisational finances and that family members appreciate the differences between their own finances and those of the business.


Proper fiscal and governance measures need to be in place and reviewed on a regular basis to ensure that your business runs as just that – a business.

Family battles

Whenever family members are engaged in one project, there’s a chance that they will clash. And, due to family histories and relationships, that clash will often be more emotional than a disagreement between colleagues.


Internal conflict caused by family members is the result of being unable to separate family and business matters. If these feuds aren’t handled properly, they can often spill out into the operations of the business, upsetting staff members, and preventing the achievement of the business’ goals. This is especially true if family members are in positions of authority and unable to treat others with respect and professionalism.


If your family members don’t learn to manage their disagreements and their attitudes, staff turnover will increase and your work environment will become an increasingly hostile one.

No succession plan

Because family is there to take the reins, family businesses often forgot to put in place a formal succession plan. This can stunt business growth – either talented staff members will leave or won’t join the organisation due to a lack of career prospects, or family members will be unprepared to take on the challenges of leadership roles when they open up.


In addition, this outlook presupposes that family members will automatically want to be part of the family business. If you do not have a proper plan for what is going to happen in the future, you are setting your business up for eventual failure.

Inability to adapt

Life is constantly changing. If you don’t allow your business to change and grow in relation to the changing marketplace in which it operates, failure will be your next destination. No business can stay the same and grow and succeed.


If you understand that you might not be able to run your business the way your parents did or the way your children will, you’ll go a long way to establishing a business that responds to the changes it encounters with a combination of experience and innovation.


So, in closing, is your business at risk?

Christophe Bernard

Christophe Bernard
I am a KPMG partner based in the French firm’s Paris office, responsible for encouraging the growth of our firms’ middle markets practice across Europe, Middle East and Africa, a majority of that market comprises of family businesses.
 

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