7 Reasons Why Family Businesses Fail and How to Avoid Them

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 Many advice and suggestions may help establish a thriving business and sustain it for the years to come. However, most successful family businesses fail in the second or third generation.

In this article, you will discover the top 7 reasons why family businesses fail and how to avoid the:

1. Family Feuds

Family conflict is a common challenge in any family business. Sibling rivalry, disputes between in-laws and extended family, and differing values and priorities are often cited as the main cause of disagreements leading to poor business decisions.

Accumulated poor decisions and business failures can quickly become a big heap of a problem that can potentially jeopardize the business.

Family discords are inevitable, and not separating your personal feelings from your role in the business can get in the way. These conflicts, no matter how minor or extensive, often prevents a company from moving forward.

The best way to address family feuds is to establish a procedure to manage and resolve conflicts. Provide a forum where disagreeing family members can objectively communicate and air out their grievances and permit them to come to terms with their issues and concerns.

2. No Succession Planning

Succession planning is a vital process to prepare an organization to replace old leaders. When the time comes, the most qualified people will continue what they have started.

Often, family-owned corporations refuse to accept this strategy for fear of handing over the business to employees and people who are not immediate family members.

A succession plan serves as an invaluable roadmap that guides a business's future in terms of predecessors and new leaderships.

Other than identifying people to take on new leadership roles, this process requires time and training. It takes time to groom and prepare someone who would eventually take on significant business responsibilities.

If you are starting a family business or have successfully run it for years, now is the best time to start succession planning. This process takes years, and whether you plan to hand the business strictly to family or are keen on bringing in managers from outside, having a succession plan is one guarantee for your business to survive.

3. Unqualified Leadership

The promotion of unqualified family members in the business is a serious matter that needs to be addressed if you want your business to succeed. Because of familial relationships, unqualified family members are often promoted to key leadership positions as special favors.

When you put someone unfit for the position, you risk having unhappy and resentful employees. Nepotism is often frowned upon, and it can significantly affect employee morale and satisfaction, which negatively affects performance and productivity.

Set up policies and establish guiding principles to outline the necessary qualifications, education, and experience before a family member can occupy a top position. Doing so ensures that someone in the leadership role is well-equipped to run the business.

4. Undefined Roles and Responsibilities

Lack of formal structure and governance is a detrimental cause of concern for family-owned businesses. A governance structure serves as a solid foundation for each family member's professional role and responsibilities. It provides a defined line and a better sense of everyone's part in the business.

Undefined roles and responsibilities confuse and can complicate familial relationships because functions are not appropriately communicated.

Governance helps business families streamline the flow of communication and information to ensure all family members are made aware of what's going on in the business.

By having consistent family meetings, assemblies, and councils, all members will be part of vital decision-making while ensuring that no family member feels left out and excluded.

Having a formal organizational structure and policies in place define the roles and responsibilities of each family member. It also helps regulate familial relationships and avoid possible misunderstandings and conflicts.

5. Generational Conflicts

Differences in visions and commitments between generations can sabotage business growth and success. Generational conflicts occur when different family generations have varying priorities and expectations.

The older generation is hesitant to give up control and continue holding the reins despite their age and obsolete business strategies. On the other hand, younger generations have opposing ways, views, and ideas of doing things.

For a family business to succeed, it is essential to strike a perfect balance between knowing when to let go and how to accept new ideas and innovation. Always keep your business as your top priority and work on finding a win-win compromise.

The next generation should be willing to work with established methods and demonstrate open-mindedness and flexibility. 

6. Reticence to Seek Outside Help

A family business usually has family secrets they want to keep to themselves. These sensitive issues can be a valid reason why most family businesses are hesitant to seek outside help.

Trusted advisers outside the family are valuable partners to ensure business success. Business experts other than you and your family members are assets that can provide you with helpful business advice. They can give useful insights to your business coming from the perspective of someone outside of the family.

Reliable and trusted legal and financial advisors are a great way to ensure you comply with all the regulatory requirements for your business to operate. External consultants can also share their expertise when it comes to financial planning and corporate governance.

7. Lack of Fundamental Financial and Business Education

Little to no understanding of financial and business management can destroy any successful and thriving family business. The lack of fundamental business education can put the company at a greater risk of failing.

Someone who doesn't know the fundamentals of money management and running a business is a great danger to any enterprise. Imagine making big business decisions without the required knowledge to do so.

People in leadership roles and management positions must hold the knowledge and skills gained from traditional and emerging business education. They need to learn the ropes to meet the complicated demands of a family business. 

Family Business Can Ensure Generational Success – Here's How! 

As a business owner, it is your responsibility to equip yourself with the necessary knowledge and skills to make wise business decisions. Today, specialized business education in the field of family business is offered in MBA programs.

By earning a degree in Business Administration (MBA), you'll be empowered to steer your company in the right direction. You can effectively formulate and implement policies, procedures, and vital business strategies to smoothly run the business and keep it thriving for generations to come.

Many family-owned businesses could continuously grow and actively renew their visions and commitment while providing value to their customers. All because they are willing to get the needed education to ensure business success and longevity.

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