Date posted: May 26, 2016

I’ve been providing family owned and operated businesses with accounting and business advice for more than 15 years. On some occasions, I have been seconded into a family business on a full time basis, and this has enabled me to become a genuine member of the management team, giving me access to the business owners and other members of the extended family.

My family business secondments have enabled me to observe closely many of the issues unique to family businesses such as succession planning. An interesting observation I have made is that many family businesses begin as if by accident, and in my experience, more than half of all family businesses start this way.

In many cases the business is initially driven by a lateral thinker with an entrepreneurial bent, who appears to have dreamt up an idea almost out of thin air. That said, some ‘accidental’ family businesses start in response to a specific issue or problem faced by a family member. It’s well documented, for example, that dynamic Australian entrepreneur Sue Ismiel started Nads, the hair removal business, after she couldn’t find a suitable product to address her young daughter’s follicular challenges.

A very interesting aspect of this family business story, which started in 1992, is that she had absolutely no scientific training and only chanced upon the successful Nads formula after much trial and error using many combinations of ingredients mixed together in her kitchen.

Sue isn’t a client of mine, and not all family businesses achieve her level of success, but this story illustrates that family businesses can start from a kitchen or a couch, before transitioning to a home office located in a bedroom or garage.

Typically, mums or dads and their children play the role of early adopters of a product or service, before friends and the extended family get in on the act. Then, if the family business has legs, word of mouth kicks in and, before you know it, there are expressions of interest from potential customers.

Operationally, we find that mums, dads and offspring are seconded into the family business and, if it proves successful, they are quickly run off their feet. It’s at this point the ‘accidental business’ faces the prospect of bigger premises, more funding, stock issues and recruitment. If the ownership/management doesn’t have sufficient business experience, they can go from founder to flounder in the face of this growing complexity.

Let’s take the issue of recruitment, which is one of the more significant stumbling blocks to growth, apart from finding the right people. Managing staff involves preparing payment summaries, making compulsory superannuation contributions and arranging workers compensation insurance. There is also payroll tax, which some of my clients say is a penalty to growth.

In truth, these considerations are just the tip of the iceberg, but they serve to illustrate that growth goes hand-in-hand with additional complexity, which is where having the right advice is an absolute must.

Typically, we also find that many family businesses reach a point were professional management is required, when there is an understanding of the three separate but overlapping attributes – the family, the business and the ownership. This is commonly referred to as the family business being ‘professionalised’. Generally speaking, a professionalised business combines the positive aspects of a corporatized environment with the long standing family values of the business.

To help owners professionalise, we regularly second members of our services team into a family business on a full time basis, for a specific period. For instance, one of our team members recently operated as a full time finance manager for 12 months. During the secondment, he assisted the business to develop robust financial reporting systems, implement strategies, as well as basic checks and balances.
Professionalising is a journey and not a destination.

This article has been provided by Tony Kabrovski, HLB Mann Judd. Tony is an FBA Accredited Adviser.

The advice is designed to be general in nature.