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Avoiding disasters in family businesses

If you thought catching up with your family once a year during the summer holidays was stressful enough, think of what the nearly 500,000 family businesses in Australia have to deal with. Just how do families avoid conflict when they all work together?

One of the issues with family businesses is that all too often, when conflict arises, it can get personal. Past hurts from childhood can be brought up and personal feelings dominate when good business sense should prevail.

Annette Bonnett is a partner with HLB Mann Judd and head of its Business Services Division in South Australia. She says the issues in family businesses can stem from generational differences.

“The older generation often controls the bank account and ownership while the generation coming through want everything now,” she says. “It can cause conflict, especially when mum and dad advise the children that they’ll get the business when they are ready to hand it over and not before.”

Transition and succession are the two most common areas of disagreement. Often by the time the children are aged in their 30s they want to take over the business, however the parents continue to view them as not mature enough and won’t let go. Annette says parents not only have to deal with the issue of choosing which child will take over the business, but also if there isn’t a role for other children.

“The transition to a new family member taking over is a complex issue, especially if the parents’ superannuation money is tied up in the business,” Annette says. “Governance is also important. At some point a constitution needs to be set up in order to work out what the family wants as opposed to what the business needs – which are two different things.”

She adds when issues arise, the first question that should be asked is whether it is a family issue or a business issue. “Once that’s established, it’s much easier to put a framework in place to deal with it,” she says.

 

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Just because it’s a family business, it doesn’t mean everyone in the family wants to work for it.

Practical tips for avoiding conflict

Keeping communication constructive and professional is one of the many ways you can avoid conflict when working in the family business. Here are a few more:

Communicate. Avoiding disasters is all about good communication. But make sure you have the conversation rather than letting the issue roll on until it becomes litigious.

Formalise any contracts. Just because you’re dealing with family don’t think a handshake is going to protect you. It’s very important to have everything in writing – whether you’re talking about a job description, business procedure, or trust distribution.

Decide who is boss. Unless it is clear who is running the company, the business can be paralysed through each family member wanting to have their say. Someone needs to have the final say so get advice on setting up a board and then elect members based on their skill set.

Ask if everyone wants to be involved. Just because it’s a family business, it doesn’t mean everyone in the family wants to work for it. Check that no one is working out of a sense of obligation. If this is the case, it could have dire consequences. An open and honest dialogue is essential here.

Separate the personal from the business. You may still remember an insult from your sister from when you were 10 but don’t let it affect how you perform in the business. Keep all communication when talking about business matters constructive and professional.

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Gayle Bryant

Gayle has been a financial and business journalist and sub-editor for almost 30 years. She has written for a wide range of newspapers, magazines, custom and trade press and websites. Gayle’s articles regularly appear in the Sydney Morning Herald’s small business section and the Australian Financial Review’s special reports section.

The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Homeloans Ltd.