Family-owned businesses are often, and rightly so, referred to as the backbone of the Northern Ireland economy. They employ well over 50,000 people and in relative terms there are more family businesses in Northern Ireland, than in any other part of the UK.
The largest of the local family businesses are well known, and several are represented in the 2017 Sunday Times Grant Thornton Top Track 250 League Table, including LCC Group, Graham Construction, Lagan Construction Group, FP McCann, Norbrook, and Wrights Group.
Many family firms will point to the strong personal bonds, loyalty, commitment and a long term strategic view, as characteristics that underpin their success and provide a unique competitive advantage. Fundamentally however, it is the ability to develop a culture that respects and accommodates the best interests of the business and the needs of the family that will give a family business longevity.
Where the line between family and business interests becomes blurred, both the business and the family unit will tend to suffer, and despite the notable success stories, the long term failure rate of family businesses remains high, with over 90% of NI family businesses failing to make the third generation.
To improve the chances of becoming a multi-generational business, there are five key considerations that family owned businesses should address.
Communication; strong relationships require good communication. Often within family-run businesses, poor communication can turn negligible disagreements into major conflicts. Appointing a non-executive director or establishing an advisory board to provide an impartial viewpoint will help prevent emotions from clouding business decisions.
Financial planning and expertise; all businesses, not just those that are family-owned, should ensure they have an appropriate level of financial expertise to prepare the business for growth. A common hazard is not seeking financial advice when needed, as often this means looking outside the family.
Conflict avoidance; the business environment can often be a stressful one. Add family relationships to the mix and the potential for conflict increases significantly. Family conflicts need to be avoided or dealt with at an early stage and clear guidance through a written constitution, or similar document setting out how to deal with conflict and disagreements, can be invaluable. A trusted third party may also need to be involved in more serious manners.
Talent management; talent outside the family may often be better placed to help run the business. Pay packages that reward the family in excess of ability or performance will decrease staff morale, increase staff turnover and push away key talent.
Succession planning; around 40% of employees in SME’s feel the business wouldn’t survive without the founder, so the earlier the succession planning starts, the better. Choosing the right person to lead the business into the future is one of the most important strategic decisions a family-run business will face. Therefore, if the strategy is to retain leadership roles within the family unit, the importance of nurturing talent identified at a young age cannot be underestimated.