This piece originally appeared on Black Enterprise.
According to the U.S. Small Business Administration, family businesses account for 62% of U.S. Employment. Yet, only a third of these businesses make it to the second generation, 12% to the third generation, and only 3% operate at the fourth generation and beyond.
To keep the doors open and guarantee that these businesses stay within the family, members must be willing to work on such critical — and often difficult — issues as in-family relationships, management structure, and ownership agreements. Baruch College professor Elisa Balabram, an expert in small business management and entrepreneurship, serves up five key tips to running or starting a successful family-owned business.
1. Focus on communication. Practice transparency, build trust, determine and agree on family and business values, and understand the members’ goals and aspirations within and outside the family business. Set up weekly business meetings, while allowing time for family issues. Create family rituals that allow for bonding, including dinners, hikes or adventures, where business discussions are not allowed. Hire a mediator to help mend relationships and reestablish trust if there are any trust issues and difficulties communicating.
2. Understand and define roles. It is common for family members to occupy multiple positions without a defined job title. This can create conflict, as there isn’t a clear leadership role and no one knows who is responsible for specific tasks. At family business meetings, discuss each person’s role, skills and talents, and find the best fit for them. This structuring can help professionalize the business and improve everyone’s accountability.
3. Write a family constitution. Items to include are: mission and vision statements; values; employment policy; sample of pre-nuptial agreements; strategies to develop the next-generation; ownership policy; family-bank and/or family venture capital funds; dividends and benefits policy; liquidity policy; who can be elected to the board of directors or join the advisory board; succession planning strategies; rules about the family council; and information regarding the shareholder meetings.
For more on running a business, watch this Coins2Day video:
4. Hire employees that are not family members. This is an opportunity to attract talent that family members may not have. Non-family employees can share their expertise and serve as non-biased supervisors and mentors to the next generation. Having independent directors on the board can assist with the company’s strategic and succession planning.
5. Empower the next generation. Set rules regarding opportunities available to family members. Give the next generation a chance to work part-time. Pay them market value and hold them accountable to perform their jobs well. Encourage them to pursue their education and career dreams. Allow them to work elsewhere, to gain experience and new perspectives. Give them the freedom to choose their own career path, and to decide if they want to join the company full-time or not. Make sure to mentor and empower them so that they are ready to take the leadership role when the time comes.
