Four common assumptions about family businesses

Running a small business can be challenging at the best of times, but doing business with your family can be even more difficult. While it may be easier to raise capital and brainstorm new ideas with family members, it can often be easy to take them for granted and assume you know everything about their beliefs, preferences and opinions.

With family firms accounting for around 70 per cent  of all Australian businesses, here are the four most common assumptions made about family businesses to help you evaluate if this is the right type of business for you.

I know my family well so there's no need to tell each other everything.

Clear, two-way communication is key to avoiding sibling rivalry and misunderstandings amongst family members. New policies, processes and decisions that fail to be explained properly, or communication to certain employees and not others, may cause a rift in the family that can come back to bite the business at a later stage. Even if you think you know your brothers, sisters, parents and uncles well, take the time to seek their opinion and ideas on issues.

Decisions should primarily be made amongst the most senior family members.

The average age of a family business owner is 55 years, and while seniority may count for something when doing business with relatives, it doesn't mean that younger family members can't get involved in the decision-making process. They may not have the final say in whether you go with a new supplier, or launch an advertising campaign, but they should have the option to suggest new ideas, brainstorm and provide constructive criticism. Younger people often have fresh, more creative ideas that older employees can benefit from.

I'm the eldest child, so I will inherit the business when my father retires.

Succession or estate planning is something all families should talk about, especially if the business is generating profits. Statistics from Family Business Australia  indicate that only one in five family businesses have a succession plan for the CEO, yet 41 per cent intend to pass the business on to family members. Without succession planning, there may be arguments between employees that assume they would be first in line to 'inherit', which can lead to legal action in the worst case.

Accounting company BDO suggests appointing a family member or caretaker manager prior to the CEO relinquishing its control of the business, or appointing a professional non-family member that you trust. Liquidation or sale of the business can also be alternative succession plans.

I should put my brother/sister/relative on the payroll even if he/she doesn't really help out.

A challenge for many family businesses is around the issue of pay - some employees may feel they should get paid for being in the family despite not contributing significantly; while some others feel they may be under-compensated for what they do. A survey conducted by KPMG and Family Business Australia reveals one-quarter of firms were paying family members more than non-family members for similar work, while 61 per cent said they were paying family and non-family employees the same amount.

Additionally, 63 per cent of firms reported family members worked longer hours than non-family members. It's important to pay on merit - e.g. paying in accordance with the position level and performance, and not solely on family connections.

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