Already 2015 is a distant memory. Now it’s time to focus on a few practical goals to help your family business prepare for the future. These tools can be applied to any family operation and, hopefully, make 2016 a seminal year.
- Create / Review Governance and Succession Plans
Did you know the vast majority of private family businesses fail to make it to a 3rd generation? A formal governance structure is one of the best ways to ensure the sustainable management and long term success of your family business. Many families are reluctant to address business governance structures. Often, this is because it forces them to confront major changes in their day-to-day business management. Without a well-thought out governance roadmap, however, you may be inadvertently leading your business down the wrong path. A good governance structure acts as a formal agreement between family members about issues surrounding communication, decision-making, the separation between family and business, and dispute resolution.
Research has shown us that effective family businesses control the succession process before emotions control the picture. In short, this stage is all about setting up your business to succeed for decades down the road. Succession planning can’t be stressed enough. A lot of family business leaders work tirelessly for years and take risks to build a successful company, only to throw it all away and force future generations to start from scratch because they didn’t address succession. It doesn’t have to be complex or challenging, either. Start early, articulate what you want to achieve – namely training, harmony, consistency, and fairness (though not necessarily equality) – and get everyone to buy in for the long haul.
- Practice Giving Back. Work within the Community
Family businesses can build extremely strong and wonderful bonds with their local communities. Philanthropy and community service are wonderful ways to support those who support you and enhance customer loyalty. It also helps market your firm as a family business – a perception that creates trust and emotional attachment. More importantly, giving back helps everyone involved. Studies show that happiness is directly correlated to how much service you provide for others, and the spirit of giving can teach younger generations the importance of hard work, money management, and charity.
There are some simple steps you can take. Use an annual gifting approach and build it into the business budget; take advantage of tax breaks by giving to deductible gift recipients (CGRs); larger family businesses can even establish Private Ancillary Fund (PAF). “What goes around, comes around.” It’s a good life philosophy, but it can also help family businesses separate themselves from the pack.
- Know What Your Business Is Worth
Even if you’re not ready to sell your family business, it’s important to know what it’s worth. Tracking business value from quarter-to-quarter or year-to-year is one of the best and simplest ways to know if you’re actively creating (or destroying) value with the business.
Business valuations are very important when it comes to raising capital. Not every family business necessarily deals with debt and equity issues, but many do. If you’re looking to partner with a bank, outside investors, or even divvying up the business among family members, you need to know what your business is worth.
Think of valuation as taking the pulse of your business. Nearly every common valuation method uses some derivation of discounted cash flow. Keep tabs on cash flows, operating expenses, capital investments and stakeholder interest.
4. Build a Narrative for Your Brand
Family businesses are strongly encouraged to prominently identify their firms as family enterprises and take advantage of resources available to them. An easy way to promote your family business narrative is to use the Family Owned Australian Business emblem, which is designed to signify to government, community, and customers that your business is a major contributor to the economy and culture of Australia.
Even if you’re selling the same products as your competitors, you need to make it seem like you’re offering a unique value. Consumers want to bond with their products and services, so be the kind of business that helps your customers’ self-image. This can be anything from making them feel cool, making your business seem emotionally significant, getting on the cutting edge, building a conversation with your community, etc. You want your business to be part of a future that your clients are excited to associate with.
5. Get Online and Do It Right
It’s a digital age, and people expect businesses to have an internet presence. You want customers to find you if they search the internet, and you want them to click on an attractive web page. In 2014, Google estimated that 55% of worldwide online purchases occurred within an hour of the initial search. Make it easy to be found.
Remember that shoppers buy with their eyes. Take a little time to understand web-based user experience, and encourage your current customers to visit your website – the more clicks you generate, the more likely you are to show up on a search engine.