Business First September 2017 Business First September 2017 | Page 16

BEST PRACTICE

Decisions and Dilemmas ! - everyday reality for family businesses

by Maybeth Shaw , BDO Northern Ireland

W

e have now closed our Future of Family Business in Northern Ireland survey , which has had a fantastic response and we are busy compiling the results .
There are really clear and strong messages being given by local family owned businesses on the commercial challenges they face , the issues impacting on their succession planning and the areas that are likely to cause disruption to their business in the future .
We are still working through the responses , but even at this stage it is very clear that family owned businesses are still struggling with some big decisions and dilemmas :
Family First ­v­ Business First As we all know family owned businesses have the added challenge of managing family relationships and the emotional issues that arise .
Successful family businesses have to find a balance that meets the needs of the family while also sustaining the business .
While the family is the number one priority in most family businesses , it is important to note that it is the business that enables family members to live their chosen lifestyles , fulfil their need for achievement , and support their communities . The business must stay healthy .
This is a real family business dilemma . Neither is wrong , but a family ’ s position between these two philosophies impacts several important decisions .
Merit v­ Entitlement
One decision parents are faced with is whether their children must earn the right to work in and / or inherit the business and , whilst the answer they give is almost always ‘ yes , they need to earn the right !’, the reality in many family businesses is that this not necessarily how it works in practice .
In practice family business successors are not necessarily chosen because of their leadership skills , but rather because of their DNA . Also family employees are often not subject to the same performance evaluations as other employees .
Both of these can lead to disgruntled non family employees , in an environment where employee retention and recruitment are increasingly difficult .
We all recognise that it isn ’ t wrong for family members to benefit in some way from their families ’ successful business , however that has to be balanced with the knowledge that unearned power and wealth can lead to the eventual demise of the business , as well as issues for the individual family members .
Fair ­v­ Equal
A separate issue to identifying a successor to manage the family business , is the issue of ownership .
Does the successor that will run the family business inherit ownership or is ownership to be held by a wider family group ?
In many cases the majority of the family wealth is embedded in the business . However , carving up the family business equally may not actually be fair . It can result in siblings working together , who might not have otherwise chosen to work together .
Alternatively , it can result in one child running the business for the benefit of all siblings .
In some cases , we hear that children should be treated equally , treated exactly the same in all matters ?
Does that mean everyone who works in the business is paid the same or that all children receive equal shares in the family business ? On the other hand , if only children who work in the business are given or left shares in the family business they could end up receiving a much higher proportion of the family wealth than their siblings ( although consideration has to be given to value that they have added to the business ).
To be truly fair , business owners may feel that they need to find ways to equalize the distribution of family wealth among their children .
In the dilemma of fair versus equal the goals of the business can sometimes challenge the values of the family .
The first step in addressing all of the above issues is open , honest and regular
MOREINFORMATION
Future of Family Business in Northern Ireland Report
BDO aims to publish the full report on the results from the Future of Family Business in Northern Ireland survey in the Autumn . You will be able to find a summary of the Key Findings in the next edition of Business First . If you would like to request a copy of the full report , please contact Maybeth Shaw or Angela Keery on 028 9043 9009 .
communication between family members .
We help family owned businesses work through all of the above dilemmas and in many cases we provide innovative solutions to seemingly difficult problems .
Most businesses agree that independent , trusted , advice regarding succession planning is necessary , and we know that working through the above issues with a trusted adviser provides a clear advantage in moving the business forward .
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