There are over 2 million small businesses in Australia and Government research shows 87% of them are family businesses. While they have a lot in common with other small businesses, family owned and operated businesses also face their own challenges and rewards. We look at what makes a successful family business and offer tips on how yours can be too.
Characteristics of success
According to the ‘Family Business Survey 2015’ conducted by KPMG and industry body FBA, the top five business objectives of family businesses are:
- Product and service quality
- Cash flow
- Net profit
- Sales growth
In addition to this, a family business has family objectives:
- Financial security for the family
- Personal challenge, satisfaction and rewards
- Quality of life outside of work
- Quality of life at work
- Family cohesiveness, loyalty and support.
And how do family businesses go about achieving these objectives? The KPMG survey identified six characteristics that were common to high performing family businesses. While they are not a universal formula, they do offer some interesting insights.
- Have a CEO who is aged between 51 and 60. Age certainly isn’t the sole factor of a family business leader’s success, but the survey found those aged between 51 and 60 achieved better results than other age brackets.
- Diversity in the leadership team. High performing family businesses tend to have a female CEO and non-family members as part of their senior management team. Diverse leadership was found to open the business to different perspectives.
- Communication. High performing family businesses use established and documented means of communication. For example, shareholder agreements, a succession plan strategy and a family constitution.
- An outward focus. They also look at what is happening outside the business and monitor it through business management practices such as benchmarking and competitor analysis.
- Entrepreneurial culture. High performers have a business culture that nurtures innovation – like developing new services or products through to being open to new opportunities.
- Financial resources. A family business’s ability to assess their financial resources, and access funds to pursue new business initiatives, is also critical.
Avoiding family feuds
One of the biggest issues identified in family businesses by the survey was conflict, with over 80 per cent saying there had been conflict or tension between family members in the business in the last 12 months. Conflict is normal in any business, but in a family can be exacerbated by existing relationship tensions. So what can you do to help overcome it?
- Every family and non-family member should have a clearly defined role in the business. They should be paid (at a minimum) the award rate with opportunities for promotion and progression.
- There should be a clear management structure in place with responsibilities outlined for each staff/family member in the business. Consider establishing a family council, where all the senior members of the family business come together to make important decisions and drive the business.
- A family constitution may also help. This is a document that is written by the family around the core values of the business and how family members are recognised and can contribute.
- Try to separate work from home. Consider ‘no work talk’ before and after work and at family events and social gatherings.
- Have regular family meetings to keep communication open and address issues as they come up. Be sure to keep all family members informed of key happenings in the business.
- Have a succession plan in place. This should detail roles, dates of action and is best documented and agreed on by all family members.
- Seek professional outside help, as required, for example, from a business succession consultant or specialist.
Celebrating family success
The unique achievements of family businesses are celebrated by a variety of national awards in Australia. One of the top gongs includes the Ernst & Young Entrepreneur of the Year Awards, which features a Family Business Award of Excellence. This year’s recipient was Brian White AO of the Ray White Group, of who the judges noted: “With just 10 per cent of all family-owned businesses surviving beyond the second generation, our winners are a testament to the unique resilience, family values and long-term vision that characterise the world’s best family businesses.”
Australia’s peak industry body Family Business Australia (FBA) also holds prestigious annual awards that include categories for Entrepreneurship, Next Generation Achiever and Distinguished Family Business of the Year (which was awarded to 100-year-old family textiles business Charles Parsons in 2015).
Awards are a great way to receive recognition and grow awareness of your family business, consider entering if you think you’re up for the challenge.
There are many online resources available that offer useful advice for family businesses. Visit Family Business Australia resource centre, the government’s Business.gov.au site, the Australian Small Business Commissioner and for recent insights into family businesses in Australia, read up the Family Business Survey 2015’.
Want to grow your family business?
Contact Prospa to learn how we can help with a small business loan to get you there.