Family businesses require special handling to succeed


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One of the greatest challenges of running family businesses is that they contain, well, family. Based on my experience working with and being a part of family businesses, I’ve learned that success requires everyone to work together harmoniously and as if they are not related.

This can sound difficult, particularly for parent-child or husband-and-wife teams, but it’s possible if everyone agrees upfront to set aside their egos and family relationships, roll up their sleeves and work toward a common goal of ensuring the business’ success. How can you do this?

It is important to recognize that your issues are probably not unique and you can learn a lot from others. Currently, family businesses comprise 90 percent of all business enterprises in the U.S. and 62 percent of total U.S. employment, according to the Small Business Administration. So take advantage of the vast knowledge, tools and other resources available today by working with consultants and business coaches who specialize in helping family owned businesses. This is a good idea for non-family businesses as well.
Having seen the good, the bad and the ugly when it comes to family businesses, I can offer some practical advice:

• Put in place the right employment policies and job responsibilities, including detailed job descriptions and goals, and enforce them consistently. Get buy-in and support by reviewing the policies with everyone.

• Routinely measure performance. Employee evaluations are helpful. Hire a non-family Human Resources Director or business coach, for example, to lead the evaluations and approve things like salary increases and vacation time. This can also help with family members who need to be fired.

• Put outsiders in positions of power. Smart business owners have independent boards of directors to give advice and often put non-family members in management who have no allegiances to anyone in the family. It is wise to employ non-family members with the strength of character to stand by their convictions and focus on what’s right for the business. This helped one of my firm’s clients when she had to make decisions that contradicted the wishes of her mother, who was a silent investor.

• Establish a clear chain of command for everyone to follow. In addition to helping reduce the likelihood of people feeling entitled to special privileges and abusing their family ties, it also helps other employees feel more comfortable with their jobs when they know the same rules apply to all. Giving family special privileges will cause problems and tensions among others and possibly undermine the success of the business.

• Reward results rather than genetics. Some of the people who matter most to family businesses – including employees, clients, referral sources and even potential buyers of the businesses – often assume that the business owners give preferential treatment to their kin. For a business to be taken seriously by all parties, everyone must believe its run fairly and with the best interest of the business at heart.

• Don’t hire your children unless they have sufficient interest and aptitude, and don’t give them too much responsibility too quickly before they have proved they’re ready. When there are problems with children, face them head on. It’s also wise to encourage your children to get experience working at another business before joining yours. My son, Philip Cassel, for example, acquired good training and experience at two other firms that made him a stronger asset when he joined Cassel Salpeter.

• Invest in employee education, including training related to people skills and communication.

• Be careful what roles you give your family members. What happens when your relative keeps the company’s books? To outside observers, including potential buyers of your business, this can create misperceptions and concerns. It’s always smart to have outside accountants review or audit your books.

• Over-communicate. Family dynamics can infuse unnecessary emotional drama. Maintaining clear, open communications channels can help neutralize touchy situations.

• Develop succession plans. Data from show that only 30 percent of U.S. family businesses will successfully pass the reins to the next generation, despite the fact that approximately 70 percent of those surveyed said they would like the business to stay in the family. Almost half of the U.S. companies surveyed had no succession plans and, by the third generation, only 12 percent are still viable. It’s critical to work with experts, such as attorneys, coaches and investment bankers, to develop customized succession plans. Don’t wait until a crisis strikes – by that time, it’s usually too late. I’ve seen too many families end up in court fighting over things that could have been discussed amicably in advance.

• Show your love. Although you should forget family ties when you’re working, you should take time out of the office to nurture your family.

For family businesses, it’s important to be realistic about the potential challenges and put in place the right systems to mitigate them. A little planning now can go a long way toward ensuring long-term success – and happy family relations for all.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies.

Whatever you do, don’t be like Congress

congressBy James S. Cassel
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For an example of how not to run a business, look no further than our U.S. Congress. Simply put, you don’t want to run your company like Congress runs the country.

It’s common sense and should be as simple as this: A company should have a board of directors acting for the benefit of the shareholders, like Congress is supposed to do things for the benefit of the citizens. And if your company’s board of directors acts to the detriment of your shareholders, then the shareholders should fire the board the same way we should fire Congress and replace the entire lot with people who will take their fiduciary obligations seriously and make the tough decisions.

Here are a few of the many learnings we can glean from the mistakes of our Congress:

Make decisions. When running a business, it is critical to make decisions rather than keep kicking the can down the road the way Congress is dealing with the reduction of expenditures. Rather than trying to blame others, you must take ownership and take action to remedy the situation. It’s never easy. Avoiding or ignoring problems doesn’t make them go away. It makes them get bigger. If you are bumping up against your credit limits and have cash-flow problems the same way the government bumps against the debt limits, you should work with your creditors to develop a plan rather than waiting until the last minute to scramble for solutions or face dire consequences like bankruptcy. Unlike the government, you cannot print money, but you may be able to sell equity and raise cash.

•  Be efficient. Much like our government needs to become more efficient, your company should continuously look for ways to increase efficiencies. Evaluate every expenditure and eliminate things you don’t need. Allocate the most resources to things that bring the most value to your firm. Invest in consultants who can help you save money, grow your business or streamline operations.

•  Don’t sugarcoat. We’ve all seen our government trying to change the definitions of things in order to make them look prettier. Don’t change your accounting methods to make problems look better or try to hide things. It is important to be clear. When there are challenges, make sure the appropriate people know so they can help find solutions. When we acknowledge the issues and problems and are willing to work together with all constituencies, we can generally come up with a solution that is acceptable by all those involved.

Take advice. Smart business owners recognize the value of smart advice. Take advantage of outside advisors to help you. However, success requires a collaborative effort in which you work with your advisors and consultants, and then take and implement their advice. I once worked with a business that hired a great advisor, but when the report was complete, it was shoved into a drawer. Reminds me of the way Congress and the president ignored the Bowles-Simpson deficit-reduction plan.(Maybe they will dust off Bowles-Simpson as a framework and surprise us all.)

•  Focus on what you can control. Effective business owners know how to prioritize and focus on what really matters. They know to deal with things that are within their reach. Understand what you can’t control, and deal with what you can control.

•  Keep a close pulse on the healthcare climate. Stay abreast of the healthcare laws this year and develop a plan for how you will handle the changes when the new healthcare law fully goes into effect next year. While it’s always better for employees to stay insured, you may have to tweak terms of your coverage to make the plan financially viable for your business. Not every business can afford Cadillac plans. Moreover, make sure you understand the law better than Congress does. I have read that very few, if any, of them read the entire bill before they voted. Before you sign any document, you should read it entirely and make sure you understand it.

•  Tackle problems head-on. If your business is losing money, don’t just keep pumping in outside money. You need to take a step back and deal with the problem by figuring out what’s causing the problem and then take the right measures to put your business back on track. For example, when it comes to employees, you need to know when to fire bad workers. Keeping these employees just means more work for everyone else, increased liability because they could make serious mistakes, and an unfair environment for other employees who have to cover for them.

•  Plan. Many middle-market business owners mistakenly assume that business plans with budgets are for bigger businesses, and they are too “small” to need business plans, succession plans, etc. They say they’re too busy with day-to-day work and don’t have time to stop and think ahead. By taking a reactionary approach and not planning for the future, they reduce the likelihood of getting what they want from their businesses. Do not be like Congress, which keeps dealing with matters piecemeal rather than adapting a budget.

•  Get help. Thankfully, there is no shortage of places where you can get help. In addition to contacting colleagues, consultants and advisors, you can get personal coaches or peer advising from companies like Vistage. Just because you’ve successfully owned a business and have done things a certain way for 20 years doesn’t mean you should keep doing things the same way today.

There’s no question that running a business is not easy. Indeed, it can feel like running a country. By taking the right steps and getting good advice along the way, business owners can minimize the challenges and increase their chance for success.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market