Do you want to access the full text of articles?

Please see our digital edition archive for the full text of articles.

Alternatively:

If you are a Chartered Accountants Ireland member, please visit the RIS service where Accountancy Ireland is available free of charge via the EBSCO databases.

If you are an Accountancy Ireland subscriber (i.e. you pay each year to receive your copy of Accountancy Ireland) please contact our Subscriptions Department quoting your subscription number and include details of the article you want.

All other users should enquire from their local public or college library about accessing full text Accountancy Ireland articles.

Home / ... / Family Businesses - Tradition and Professionalism

ver the past decade significant numbers of Family Businesses have abandoned the motto "keep it in the family" and are opening their doors to outsider influence. The second generation are being actively encouraged to seek employment outside the family business before joining the firm and the need to "maintain tradition" is being replaced by the recognition that a long-term strategy, succession management and entrepreneurship are the key to a successful business. Why is all this change taking place in Irish Family Businesses? At present, the vast majority of Irish Family Businesses are still run by the owner and founder.

These individuals have recognised that by professionalising their business they are giving it the best chance of survival through to the second, third and fourth generations. Indeed by putting in place management systems that are used by the most successful companies in the world and that complement the positive competitive dynamics of the Family Business, they will ensure the company enjoys long-term business success.

And for a company's founder, that is the jewel in the crown.

How does a family business professionalise itself? Every organisation goes through a Business Life Cycle and Family Businesses are no different. In order to successfully professionalise the business, a Family Business must go through three phases:

4 Product Driven Development,

4 Process Driven Development, and

4 Planning Driven Development.

The important thing to note about this Life Cycle is that at some point along the way a business will lose its initial competitive advantage and its market niche. It will also see its product uniqueness, industry attractiveness and family dedication begin to diminish. The key to the business' survival becomes, to a large extent, its ability to be well managed. The key to getting to this long-term stage is to professionalise the business.

When a business enters Phase 3 of its Life Cycle it has been successfully professionalised and will reap many benefits including:

4 Shared responsibility instead of a dictatorship where the owner makes all the decisions

4 The owner is freer to concentrate his / her attention on providing leadership and vision

4 Growth is controlled through documented, strategic planning that establishes targets and provides people, money and facilities at the right time to help achieve these goals

4Communication within the business is open, consistent and clear

4Outside advisors play a more active role in helping the business develop

4 The roles of the family members in the business become clearly defined; effective and acceptable processes have been established for dealing with family issues that arise in the business; and the family is able to resolve differences constructively and to reach consensus in the next generation.

Obstacles to professionalising the family business For some entrepreneurs professionalising their business by planning for and controlling its growth through the use of strategic management techniques is an intuitive process. They recognise what needs to be done and how it ought to be carried out.

However, for the less fortunate majority, the need for transition is generally recognised, but only at a level of awareness that something needs to change, that a different approach is required.

Some family businesses face significant obstacles when it comes to professionalising the company including:

4 The inability of owners to delegate. This can stem from a number of issues including: a lack of trust in others; becoming simply too attached to the business at the expense of outside interests and other career opportunities; or their need for power that prevents them relinquishing control over decision making.

4 Why change a winning formula? Not allowing the company to move with the times and modernise itself.

4 Positions of authority may be reserved for family members: the firm's reason for being is to satisfy the material requirements of the family and the appointment of outsiders does not support this objective.

4 An independent professional manager may find it very difficult to operate effectively in the family business situations. Every effort must be made to ensure that these obstacles are overcome, otherwise the business will stumble and may not make it through to the next generation.

In our experience, there are three key points a family must have in place before they embark on the professionalisation process, these include: 4A willingness to change

4 A strong commitment

4 A family member who will lead the process and see it through

So what do families need to do to professionalise their business?

The key to professionalisation is strategic management and includes such basic requirements as:

1. A strategic business plan 2. A management plan 3. A capable properly motivated management team 4. Formal management information and control systems 5. Clear and consistent communication 6. Securing external advice and assistance 7. A family strategic plan is also critical i.e. Family Business Constitution - set of governing rules, regulations, policies, aspirations

A strategic business plan is central to the professionalisation process. It can help to position the business externally for future success in the market place and can pinpoint those external issues which must be resolved to establish the foundation for growth and maturity.

In a family-owned business, the strategic planning process should be initiated with an assessment of the expectations, needs, goals and priorities of key family members.

To support the strategic plan a management plan should be drawn up that sets out operational procedures to translate the business plan into specific goals for the people who are responsible for its implementation. Family member should be treated just like other employees - some owners expect too much from their children, some expect too little.

Outside help can contribute significantly to the professionalisation and the success potential of the family business. Specialist outsiders are experts in their relative fields. They are objective and non-emotive and thus can be applied to both business matters and non-business issues arising from family involvement in the business. Experienced consultants can act as facilitators in both family and business strategic planning - organising the process, guiding the discussions and providing an objective perspective. They can also assist in the management of growth and change.

Many businesses find it immensely valuable to involve outsiders at board level in their company. Independent outside directors meeting regularly to advise the company on business policies can often provide an injection of professionalism and objectivity to board discussions. In addition they can act as a counterbalance to the introverted stance of many family firms. Once the need for outside assistance has been recognised a vital step has been taken.

Bearing this in mind, it is important not to completely separate the family's interests from decisions which affect the business. Attempts to build an artificial wall would deny the reality of family and human behaviour. More importantly, it would deprive the business of the unique strengths and contributions that the family can bring to it in terms of loyalty, trust and willingness to sacrifice and share in a common enterprise. The thing to do is to recognise points of family overlap with the business and to address them consciously as part of the professionalisation process.



Conclusion

All too often we read about family businesses in crisis, those in conflict or those that did not survive through to the next generation. However, there are family businesses that do make it through to the next generation and are expert at adapting to new developments and challenges in the economy. Our experience in working with over 150 family businesses on this and related issues leads us to conclude that the best family businesses recognise that professionalising the business is key to long-term success.

Jason Sheehy, Partner, BDO Simpson Xavier Centre of Expertise for Family Business

I am currently undertaking an MSc in Mngt Practice MPP34 from Trinity College supported by the IMI. My area of interest in the professionalisation of the family business and would be interested in any information that you can provide me with / any readings that you can recommend. Kind regards

good and relevant article