Formality and governance. Do family businesses need them?

It's common for family businesses to believe they don't need the same formalities as other businesses; it's particularly true with issues like vision, goals, and succession planning. But being a family business means it's crucial to document these things because maintaining family relationships is more important than business. So, what do you do?

Kirsten Taylor-Martin is a partner with Grant Thornton Australia, and an Accredited Specialist Advisor member with Family Business Australia. As a specialist family business advisor, she assists family businesses with developing structures and succession plans to ensure they continue to grow for generations to come.

In a webinar with Trudi, Kirsten explains why family businesses need to have a documented constitution or rule book. It’s not a legal document. However, it’s an important tool to guide the family whenever they need to make difficult or emotive decisions.

Here are Kirsten’s 5 tips to ensure the smooth running of any family business.

1. The purpose of the family business constitution (or rule book) is to provide a process to follow to ensure difficult situations can be dealt with smoothly. Examples include:

• A family member wishing to leave the business or sell their shares
• Succession planning and how future generations join the business
• Significant operational decisions – especially those that involve growth, diversification or substantial investment

2. Family business constitutions should always be put together when things are going well, rather than waiting until there is a problem to be resolved.
   
   
3. When developing the family business constitution, begin by describing:
• Why you are in business together?
• The vision for your family business
• The family’s goals for the business 

When this is clear, it’s much easier to work out everything else.

4. Set time aside for regular, formal meetings with all stakeholders to discuss your family business' constitution. These meetings need to have an agenda and minutes to ensure all decisions are documented and actioned. 

Consider these meetings as an investment in the future success of your family business - statistically, only 12% of family businesses transition to the third generation. If you want a business that survives the test of time, you need a solid framework to ensure its continuing success, and the business constitution will help you.

5. Engage an independent and impartial third party to facilitate these meetings. Their role should be to ensure:

• Everyone is heard
• Best practice is followed
• Discussions remain calm
• Meetings stay on track

The challenges of running a family business

Working with the family can be challenging. However, it can also be hugely rewarding and lots of fun. At Numeric Eight, we specialise in helping family businesses with their bookkeeping, accounting and financial literacy so they can continue to thrive for generations to come.

To discuss the possibilities, contact us to arrange an obligation-free 30 minute consultation with Trudi.