Your family business can successfully pass on to the next generations; but be careful with errors that you can get to comment. I also call them "traps".
Those who founded and built large companies with their own effort and personal sacrifice, know how difficult it is to leave in the hands of "individuals" that business that they saw being born, raised, fed and watched grow.
Every businessman wants his children to take the flag and continue the company. What's more, they want to see that company grow even more in their hands. However, those who are about to do it, who are doing it and those who have already done it know that this is much more difficult, more complex and more painful than we would like.
There are undoubtedly many pitfalls in this process. Recognizing them in time can help you make this transition successful.
For starters, you must accept that it is true. It is a reality and the failure rate has been proven to be very high. As you pass from one generation to the next, many successful companies fail or begin to decline over time until they disappear.
A family-owned business can and should successfully move from first to second generation, equally from second to third generation.
An article of this size cannot cover the complexity of this problem, nor can it claim to present all the traps that well-intentioned entrepreneurs who want to see their companies in the hands of their children and grandchildren can fall into. Still, I will write this in two parts and try to synthesize it as much as possible. So don't forget to read the second part later.
I assure you that I have seen everything in these thirty years working with family, small and medium-sized companies. Many experiences, most have been very positive and tremendously inspiring.
I have had to listen to an "Arturito" saying to his father -who had founded a business 15 years ago, that allowed this boy to study at the best universities without having to work-: "Daddy, let Don Enrique speak, you don't even know what you're talking about ”.
Few of those cases I have had to witness, but many like Kelly's, "daddy's daughter", who lived a loose life without major commitments, faces a situation that changes her life completely. Her father founded a commercial company 25 years ago, the business is small, it has been growing, very profitable, enough to create a good family economy. The father suffers from a terminal illness and Kelly suddenly becomes "out of necessity" an entrepreneur. But behind that young college girl, there was an impressive leader. She took the reins of the business, obtained a master's degree and with great vigor, effective leadership and good decisions, she managed to make that company become ten times bigger and more successful than the one she had received from her father.
Returning then to the issue of cheating, those problems and errors into which family businesses fall: I will now give you some of these traps. In other articles later I will tell you about others and I will delve into some aspects of these.
1. Safe employment for children and their families
One of my most successful clients, is a company owned by three shareholders that are NOT family to each other, they made the decision to NEVER allow any of them to work in the company. They decided it one weekend when the children, still young, ran around the garden and listened to their wives “arrange” each other's professions so that when they grew up they joined the company.
They visualized the panorama. They upheld the decision until the day they sold the company, almost 40 years later. A son of theirs never worked in the company, nor a close relative.
It is not what I recommend to my clients, but it worked for them.
We want our children to work in the company and to add value, to make it grow with their talents and abilities. I have seen companies inherited from children who have been much larger in the second generation, thanks to the fact that these children were trained and trained before joining.
The problem with this trap begins when parents almost force their children to work in the company, even if those children are not interested, are not attracted to them, or simply want to experience other things.
Many parents incorporate their "unemployed" children into whatever position, as long as they are not at home doing anything or with their friends spending their money. Some of those children simply do not get a job, so the easiest option is to get there and ask for a place in the company.
Many of those children grew up amid wealth that was built by their parents when they were very young. So some of those children did not experience the same shortcomings as their parents. These children have access to better universities, to more solvent social strata; But not all of them develop the talents that require taking over the management of a company.
Many cultures have made them do chores of all kinds as children, in business, that integration with the business means that they incorporate it into their lifestyle and when they grow up, it is natural for them to work in the company and assume the operational or managerial tasks of their parents.
My recommendation is: first, that parents know very well the talents and abilities of each of their children. That working in the company is not considered an already earned right, just because you are a child or close relative. That son must earn the right to work in the company, because he has the talents, the commitment and the skills to assume a position.
I remember Jorge, weak in character and forgiving, when in the Board of Directors we analyzed the financial statements and the monthly loss was twenty thousand dollars that month, his eyes denoted less concern, he was at that time more concerned thinking if his car had already been washed because he was about to go out to lunch. Who is responsible for this? It is not the son, it is the father, who places him in a position for which he has no talent. He was a good salesman and, one good morning, they make him General Manager.
Children or close relatives who wish to work in the company must be placed in the positions for which they have earned the right, by talent, ability, knowledge or training.
Trap # 2: The company covers the family's fixed costs
In these 30 years I have advised two family businesses that failed. I call this "death foretold."
One of them had been founded some 30 years ago. All three children worked in companies. The woman, excellent, very hard-working, like an ant, from early in charge of the treasury and the office. The children, "beautiful" them. One arrived early and locked herself in her office working with computer programs and struggling with systems, with printers that did not print, looking for the best accounting program or the point of sale. This was 45 years old, he was the General Manager and we never saw him reunited with his people. His wife arrived at ten with a daughter and her two employees, collected her "voucher" and went shopping. The other son, an impressive salesman, but he arrived after ten in the morning, freshly bathed, he spent the whole morning in the Club playing tennis. Always tan.He made a few calls and left at two again because he had to meet his colleagues in the club cafeteria in the afternoon to "talk business."
The company was losing and half of the loss was produced by the family expenses of the two sons.
The owner was a great man, an excellent father and a loving grandfather. He valued weekends with his entire family, that was his opinion.
She did not want to send her children home, nor with a salary of two thousand dollars to entertain them. The man told me: “Don Enrique, you are right in your recommendations; but we will not listen. I can't get my kids out of here. The bank will have to do it ”. Unfortunately it was so, I finished my process there one month after that last meeting. Two years later the banks began to foreclose on properties and then the business had to close.
Many family businesses fail because the profits are not enough to finance the lifestyle of an entire family. Initially, the company financed only the founder's family. It was his wife, his mortgage, and three or more children. But now the children are getting married, the grandchildren are coming. Some of them are not financially independent, so the company has to “sponsor” the family budget of two or three more relatives. Furthermore, many times even the same vehicles of the children and grandchildren are financed by the company.
Few companies can bear this burden.
If the business is to bear a very large family budget, it must produce more profit to generate a cash flow that covers its own fixed costs, its debts, and a profit withdrawal that finances those growing expenses.
To make more profit, it will have to expand, manage itself better, look for new opportunities, etc. You will have to do what we promote in our consultancies: "More Sales, More Profits, More Wealth"
Trap # 3: Incompetence levels
It is very unfortunate, but the criteria for evaluating the performance of workers in a company - if they exist - are not the same as those used to measure the performance of children or very close relatives.
A son is appointed Manager of a store and is allowed to arrive at ten in the morning, leave before everyone else or not assume all functions, all this would be required of a store manager who is not familiar.
Furthermore, the specifications, requirements, and due process that is followed to recruit and select a company official, are not used to name a family member.
Suddenly the daughter becomes the Financial Manager, although she does not have the capacity, the studies, or the interest for the position. Sometimes not even the character.
A son is the one who will carry the Import Logistics because he likes to travel, not because he has had the training for the position, and he even loads the company's inventories, affecting liquidity and profitability, because he has no idea how it works.. He buys and supplies because he liked the merchandise or the vendor "was very pretty."
Sorry, but as a consultant I have had to face these situations many times and I have had to see companies in their twenties or thirties in jeopardy because the parents, in their eagerness for the children to be in the companies, incorporate them into a position what they like.
Many of them do not want to take orders, because they are owners. What's more, the same managers and bosses treat them as owners and not as workers. You pay homage to them, they laugh at you and the ideas of those boys are always wonderful.
A few days ago I had to go through the bitter experience of trying to talk to the self-appointed General Manager of a company, quite large, a business with sales of almost two million dollars a month and four hundred employees. Thanks to his tantrums and "advanced" university studies, he managed to get his father to leave the General Management. This father who is not so old is giving him the opportunity to manage and in about two years, he will see if things are going well or badly. If they go wrong, he would take over the business again. I said to him: "If the company still exists." Well, the glamorous manager with whom I had to discuss an issue did not want to look up because he was now on other things. Anyway, his own cousins say of him that he is one of those people who never looks you directly in the eye.
As a consultant, I often have to be pretty cruel about these issues.
The good news is that it is possible to pass a company to the next generation. Many of these children do have the capacity and talent necessary to take charge of the company. Many of them are taking university courses, increasing their financial intelligence, developing managerial and social skills to take over the companies that their parents created with that innate entrepreneurial spirit that characterizes all of them.
When those parents and those children manage to build on strengths and talents, to recognize, develop and increase them to take advantage of in an area of the company where they can add value, those companies will be better, bigger and will ensure sustained growth.
To the children, I recommend respecting the experience accumulated by the parents and that which I mention a lot in the conferences: “the indigenous malice” that made them successful and prosperous.
Leave your comments. I know the subject is controversial. If they have a family business and you want to treat the subject confidentially, write to me at info -arroba- fundapymes.com
Greetings and I hope that your company is getting bigger and more prosperous every day.
