Three of the Biggest Family Business Conundrums, and How to Overcome Them

Family-owned businesses are part of our nation’s DNA and a testament to our entrepreneurial spirit. Take a look around the Lehigh Valley and you’ll see this spirit alive and well in the multitude of family businesses that thrive here.

Almost one in five of the 28.8 million small businesses in America are family-owned, according to SCORE, the nation’s largest network of volunteer, expert business mentors. These companies help drive our economy: they employ 60% of the country’s workforce and generate 64% of America’s GDP. The human resources challenges these organizations face can have a huge impact on stakeholders across the board.

I’ve worked with many family-owned companies of all sizes across the U.S. and the globe. Here are some of the biggest problems I see them face:

Lack of structure, policies and procedures

Family co-workers know each other well. To avoid letting familiarity override common-sense business practices, clear policies and procedures are essential. These help reduce and alleviate confusion and conflicts. Additionally, roles and responsibilities should be clearly established between family members. This can save a lot of time, energy and money—not to mention hard feelings—between relatives. Be sure to consistently follow the rules you establish, and resist changing them on a whim. These actions can be an employee morale, productivity and retention killer.

Recruiting ineffectively from the outside

Family-owned businesses are often able to attract and retain key talent because of the reputation they have built for themselves as great places. They are often associated with strong values and positive, friendly work environments. Still, hiring can bring some unique challenges.

When you search for outside candidates, make sure all owners are on the same page about it. Be sure to have a clear and detailed job description, and set proper compensation and benefit levels. You should also remember to keep reasonable expectations for candidates and new hires.

Succession planning

Succession planning is an important part of long-term strategizing, and yet it is all too often left minimally addressed. Some eye-opening reporting by SCORE showed:

• 47 percent of family business owners planning to retire within five years do not have a successor.
• Only 30 percent of family-owned businesses survive from the first generation to the second.
• Just 12 percent survive from the second to the third generation.

It is important to decide in advance what happens to your company when you retire, or if you unexpectedly step down. Is the next generation ready to take over? Do they want to? You should talk to them about all this, then plan accordingly.

If the business is staying in the family, make sure that the next owners are well prepared with knowledge of day-to-day management and the critical financial aspects of ownership. When several family members will be left the business together, things get more complex. A succession-planning consultant can provide assistance and an objective opinion. An estate-planning attorney can help with any regulations or estate taxes that may impact the next generation.

Lotte Bacho is vice president of administration at Kitchen Magic, and one of the founders’ three daughters. She and four other family members run the kitchen refacing and remodeling company, with operations in six states and headquarters in Nazareth, Pennsylvania.

“The challenges we face are no different than any other company—recruiting, retention, training and benefits. Where we are different is that our HR functions must include dealing with quite a few family members,” she says. “It is most important to us all that the family remain strong and respect one another. We address that with a very clear set of core values, as well as differing but complimenting roles and responsibilities. To handle challenges and questions as we continue to usher in the third generation, we are establishing a strong family-business governance plan.”

As this year marks 40 years in business, Bacho feels quite blessed with how far they have come, as a business and a family.

Richard Lively is a partner and vice president of Bethlehem HR Consulting Services at RAI Resources, with Margo Trott Collins.