Common Pitfalls You Can Help Family Enterprises Avoid

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Jul 22, 2020 3 min read

As an independent advisor, you’re in the business of addressing financial pain points. When you have a clear understanding of your clients’ pain points, you’re able to reign them in before they veer off course. This allows you to show up as a partner they can count on, and that’s where your true value lies.

Here are five potential pitfalls you can address to position yourself as indispensable

1. Address the Elephant in the Room

Death is inevitable, yet for many, including most family-run business owners, the subject is taboo. While most, if not all, want their businesses to outlive them for generations to come, few have a succession plan in place.

Encouraging your clients to have difficult conversations today will help ensure a better future for their businesses and their beneficiaries. You can’t effectively pass the torch without proper succession planning. Few will address the elephant in the room without a not-so-gentle nudge. It’s your responsibility to give them that nudge.

2. Educate Your Clients on the Importance of Governance

The success of any business is dependent on numerous variables. Not all are within the business owner’s control. While your clients have no say in external influences, they do have a say when it comes to building a solid foundation.

Without a governance framework in place, the future is left to chance. A calm surface may imply smooth sailing lies ahead. Meanwhile, while rivalries, rumours, false assumptions, and the undermining of authority may be creating a dangerous undertow. Helping your clients establish an organized framework for governance prepares their business for a safe and successful transition.

3. Help Put People in Their Place

Family enterprises comprise three overlapping circles: family, business, and ownership.

Problems arise when proper boundaries aren’t established. While all family members fall into the family circle, not all own a share or have a say in the business. Without a clear understanding of their place in the business, individuals may assume roles that aren’t theirs to assume.

For example, the most favoured son in a patriarchal family structure may leverage this favouritism to the detriment of other family members, not to mention the future of the business. Setting such boundaries can be uncomfortable for business owners. As an advisor, you can support the long-term success of a family business by facilitating conversations to clarify each family member’s roles and responsibilities within their framework.

4. Bring Assumptions to the Surface

Business owners are human, and humans make assumptions. A common assumption in a patriarchal family is that the eldest son will succeed the father as a business leader. But what if he has no passion for the business, has problematic addictions or lacks the skills required to fill his father’s shoes as a leader?

These what ifs need to be explored before succession occurs. Because of emotional attachments, it’s not unusual for family business owners in North America to put age and gender before knowledge and experience. As an invested but outside partner, you’re uniquely positioned to challenge any false assumptions that could be detrimental to your clients.

5. Give Family Members a Voice

Family dynamics are complex at the best of times. Throw in a family business and that complexity can lead to grave consequences, not only for the individuals involved, but for the future of the business.

Without healthy communication, rivalry among siblings and other family members has space to thrive, and wounds fester beneath the surface as one silently begrudges favours granted to another. By encouraging your clients to create a space in which all are welcome to voice their opinions — and even facilitating conversations on your client’s behalf — you help prevent these powerful, negative forces from entering the boardroom.

Mistakes Happen — But You Can Help Minimize Them

Making errors is inevitable, yet their impact can be mitigated with effective measures. Advisor Solutions recognizes the adverse effects of unhealthy family dynamics, insufficient governance, and inadequate business structures within family-owned businesses. These factors not only pave the way for poor decision-making but also inadvertently reinforce undesirable behaviors, allowing the issues to persist unaddressed. Through our specialized resources and solutions, we are committed to assisting you in implementing effective succession planning, fostering a healthy business environment, and addressing conflicts head-on. Our aim is to empower families and their enterprises by facilitating positive changes that contribute to long-term success.

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CAMERON LANGLOIS

President & CEO @ Origin Wealth