When you make the decision to form a family business, the initial cornerstone is laid. This foundation will determine how successful the business and family will be, and whether that business will exist beyond its founders. Understand the importance of this cornerstone, get it right, and you will build a business that will endure beyond a generation – while also significantly lifting its capital value.
Active Knowledge Questions:
Do you have a clear image of the stages of growth for your business? Have you commenced with the strongest of foundations?
By definition, you could say that first generation family businesses are formed to support the financial needs of one or more families. This initial anchoring can create a ceiling – which if not acknowledged and addressed – can limit the growth and life of the business.
Two people come together to form a family unit. Say at least one is entrepreneurial and has business ideas they wish to pursue. The couple agrees to go into business but one of them is still working somewhere else. Children may come along, which will change the working responsibility and balance. The family is now more dependent on the business for income and risk is now viewed inclusive of the family needs for income and capital.
It is, at this point, that a ceiling can suddenly be formed that encases the business and its future prospects.
How does this family unit view the business and its role in family life? Here are some example questions that are typically not asked but are often answered without their long-term impact being considered.
- Is this business just a source of income to support the family needs and is this responsibility carried by only one family member or shared?
- Is the business a part of the family’s life and are its efforts and rewards shared fairly?
- Business first or family first – where are those lines drawn?
- How much is invested, in the way of time and money, into the business and into the family?
- How much financial risk should the business expose the family to?
- What family lifestyle is sought from the business?
These are ‘partnership’ questions that must be answered jointly for relationships to continue in harmony. It’s important to bear in mind that building a business can take a lifetime of work. Once someone has started down that path it can be difficult to withdraw, so agreeing on this is best done at the start and not too late in the process.
While in years past, traditionally defined roles may have decided the division of labour and responsibility between spouses and partners, today, society holds a far more shared responsibility to income generation and family raising.
Therefore, forming an agreed plan as to how the business and the newly formed family, will work as a single unit is essential to give both partners lives that can inspire a great business and a family rich with opportunities for everyone to succeed as individuals.
As the business grows, so to must this agreement evolve. Next week, we will consider how a growing business should be managed in a family context.
An entirely new level of performance.
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All the best in the success of your business,
Richard Shrapnel
