24/07/2015

By Melanie Hird, Director, Seneca Investments (part of Seneca Partners Limited)


Over 70 per cent of UK businesses are family owned but research indicates that only a fraction - some 13 per cent - survive beyond the third generation.

The turnaround and restructuring of a family owned small and medium-sized enterprise (SME) can present some particular challenges if the enterprise has been handed down through the generations as if it was merely a legacy project.

The passion, hunger and drive that fuelled the first - and possibly second - generation business can be seriously diluted by succession planning that places inheritance, family loyalty and emotion ahead of profitability.

Companies have to be agile and nimble to stay ahead and the ability to adapt, change and - in some cases - accept failure, can often be a source of conflict when the owners and managers are also relatives.

If a family business is worth saving, I recommend bringing in outside professional experience and expertise to add a fresh dynamic and objective eye to preserve the family asset. When family loyalties lead to a company being in a state of paralysis, no one is necessarily prepared to think the unthinkable.

Turnaround professionals are relentless in drilling down to where the problems lie. Often there are serious issues around the personnel and it needs an outsider to ask the awkward questions. In throwing a lifeline to a family business in distress, experienced external advisors will put the existing management team under extreme scrutiny and inevitably some brutal decisions may have to be made.

Advisors’ solutions may not be what you want to hear, but take them on board and you could transform a failing business into a robust concern which is ripe for a planned and highly profitable sale a few years down the line.

All family enterprises, whether struggling or not, would do well to ask themselves the following:

• Would you employ your son or daughter if they were not related to you?
• Are they in the right role? Do they have a talent for what they do - or could someone else do a better job?
• Is your son, daughter, niece or nephew interested and passionate about the business, or simply there because it is expected of them?
• Every thriving firm needs a ‘dream maker’ - the one with passion, commitment and drive who wants to be there, through thick and thin, from 7am-11pm. Who is yours?
• Who is holding the business back, treading water and biding their time? Is it time to face facts and let them go?

In my experience, some of the most successful family businesses recognise that their nearest and dearest are best served by gaining valuable experience and skills in the wider world. At a later stage, and if appropriate, they can return to the firm equipped with expertise, new ideas - and an appetite and drive to innovate and challenge the status quo.

For others, maybe it is time they left for good. In the adage that you can’t choose your relatives, there is no reason to let family ties determine the success and sustainability of the business which you - or your parents - have poured commitment, energy and expertise into over the past years or decades.