This is an area of many tradeoffs which has a slightly different twist to non family companies with shareholders and stakeholders who are not as intertwined as Family
1 what is the minimum cash/working capital requirements required to sustain the day to day operations
2 what is to be done with any surplus cash is it reinvested or stripped out for the benefit of the family
3 How do you accommodate a diverse group of companies with different family members all with different and personal agendas?
4 who is the overall decision maker and what are the voting rights
5 is there a succession plan?
Family businesses tend to think along legacy and long term lines which also mean total control over the day to day decision making.
What is key is the quality of the top management team and also the quality of the management information upon which they base decisions. Some decisions are also based on other factors that have a more emotional resonance than a publicly owned company and so therefore straightforward business cases don’t always appear to be straightforward.
A good run family business will have procedures and controls in place to resolve disputes as well as a belief that any decisions they make are for the benefit of future generations. This generational thinking is very important to family companies because they recognise that more of the same may not suit the next generation and the pace of external change may well dictate the very survival of the Family and well run families recognise this and invest in innovation and outside help where they lack knowledge. This is the remit of the chairman, or the main family decision makers who recognise skill gaps and plug these gaps through outside help.
Research has shown that Family Companies have lower growth than others but the flipside is having a higher profitability and survival rate in the long run.
As in any business, people have to get along with each other, more so in families that continue the relationships after office hours and so in a positive way this is a stimulus to resolve disagreements.
Family and business are interwoven with a real sense of ownership and a long term attitude, on the one hand this can also lead to resentment if childhood incidents are not managed properly, but on the other hand having a strong patriarch (or matriarch) to defer decision to in the event of deadlock or necessary compromise is a positive strength.
Generations will come into the business at a different time and maybe a truly entrepreneurial relative may require a period of trying it for themselves before fully accepting the family mantle, conversely other individuals may just blossom better in a safer environment -either way it is all about recognising the skills may come and go with different generations, characters and gene pools.
With this culture comes the biggest challenge of all, succession planning, a subject fraught with emotion, Successful business handle this with care , showing a great deal of compassion and empathy to choose the right moment, or indeed having a (un) written rule that at a certain age , it is time to go.
There is much talk of destiny and a lot of comfort can be drawn from past generations which also include long standing customers who also have a cross generational relationship with the family business and so respect and loyalty runs deep.
Against this culture is also important that non family members embrace this history and by the same token for the relationship to work it is important that the family members respect the unique talents that they are employing and that any post is filled with a deep cultural empathy on post sides, remember you can choose employees but you can’t choose your family so outside help can sometimes prove beneficial and promote innovation and in the long term provide stability.
Against this background the FD should be able to negotiate the divergent stresses within the family as to what to do with the money and the questions at the start of this piece need to be answered.
There is no magic bullet here, or indeed any formula for success but the FD who bears in mind the unique capabilities of the family and embraces the culture could do no better than provide the usual timely, reliable and accurate accounts with as little emotional involvement as possible and then let the decisions makers have a note of the alternatives. The emphasis, as always should be on correct and apolitical accounting rather than politically correct accounting and that accounting in a family business is a responsible process because you are the gate keeper to preserving the business and maintaining success without ending up as a riches to rags story because of inappropriate decision making based on inaccurate information.
